Citation

Wang JL, Chung C, Tzeng LY. J. Risk Insur. 2008; 75(3): 551-566.

Copyright

(Copyright © 2008, American Risk and Insurance Association, Publisher John Wiley and Sons)

DOI

10.1111/j.1539-6975.2008.00274.x

PMID

unavailable

Abstract

Using information on timing and number of claims in a unique data set pertaining to comprehensive automobile insurance with the increasing deductible provision in Taiwan, the authors provide new evidence for moral hazard. Time‐varying correlations between the choice of the insurance coverage and claim occurrence are significantly positive and exhibit a smirk pattern across policy months. This empirical finding supports the existence of asymmetric information. A subsample estimation depicts insured drivers' significant responses to increasing deductibles, which implies the existence of moral hazard. According to the probit regression results, the increasing deductible makes policyholders who have ever filed claims less likely to file additional claims later in the policy year. The empirical findings strongly support the notion that the increasing deductible provision helps control moral hazard.