Asymmetric Information on Risky Behaviour: Evidence from the Automobile Insurance Market

This paper examines the Swedish automobile insurance market by accounting for policyholders’ private information on risky behaviour in terms of major and minor traffic violations. Two approaches are used: A positive correlation test and a test where private information is used explicitly. The results show that there is a positive correlation, which is not affected when including private information in the regression, that policyholders with private information on risky behaviour are less likely to purchase full coverage, and that speeders follow a varying pattern. The conclusion is that it is favourable to use private information explicitly when asymmetric information is considered, rather than base the conclusion solely on the correlation test.