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  • 1.
    Arvidsson, Sara
    Swedish National Road and Transport Research Institute, Society, environment and transport, Transport economics Borlänge.
    Does private information affect the insurance risk?: evidence from the automobile insurance market2010Report (Other academic)
    Abstract [en]

    We empirically investigate the effect of policyholders’ private information of risky traffic behavior on automobile insurance coverage and ex post risk. We combine our insurance company’s information with private information data that is not accessible to the insurance company. We show that being unable to reject the null of zero correlation is not necessarily consistent with symmetric information in the automobile insurance market. Our results are twofold: In contrast to much of the previous work we find a positive significant correlation for three groups of policyholders, consistent with the adverse selection prediction. We furthermore find that private information about risky traffic behavior increases ex post risk while it both increases and decreases the demand for extensive insurance. This supports our hypothesis that adverse and propitious is present simultaneously in this market.

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  • 2.
    Arvidsson, Sara
    Swedish National Road and Transport Research Institute, Society, environment and transport, Transport economics Borlänge.
    Predictors of customer loyalty in automobile insurance: the role of private information in risky driving behavior and claim history2011Report (Other (popular science, discussion, etc.))
    Abstract [en]

    Contract relevant information asymmetries are known to cause inefficiencies in markets. The information asymmetry is largest in the beginning of the customer insurer relationship but reduces over time; the longer a policyholder stays with the insurer the more the insurer learns about the policyholder’s risk. Two important characteristics of the market studied here imply that the information asymmetry may not be reduced for all policyholders. First, insurers do not have access to traffic violations, which are predictors of risk since policyholders with traffic violations are more likely to report a claim. Second, the insurers do not share information, such as previous claims, which means that the policyholder can flee a poor claim record by switching insurer. Hence, there may be a selection of high risk customers who switch insurer more often, such that the information asymmetry in this group is never reduced. To test this, we compare information asymmetries in two groups of policyholders; new customers who stay with the insurer for a period or less (short term), and long-term customers who stay with the insurer for several periods (loyal). The results indicate that departing policyholders are disproportionately high risks that constitute an adverse selection of risks, while loyal policyholders constitute a propitious (favorable) selection of risks.

    Older version: http://swopec.hhs.se/vtiwps/abs/vtiwps2011_002.htm

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  • 3.
    Arvidsson, Sara
    Swedish National Road and Transport Research Institute, Society, environment and transport, Transport economics Borlänge.
    Propitious selection in the vehicle insurance market2010Report (Other academic)
    Abstract [en]

    By combining Contract Theory and vehicle positioning techniques, insurance companies can replace some of the proxies for risk by actual traffic behavior when pricing the premium. A mechanism design model is used to illustrate that Usage Based Insurance (UBI) can separate risks in terms of driving behavior. This makes it possible to reward safe driving habits since the pricing scheme better reflects the accident risk. The conclusion is that UBI provides an actuarially fair premium for the insuree. It is further an efficient instrument to separate risks for the insurer since it reduces the information asymmetries highlighted in this paper.

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  • 4.
    Arvidsson, Sara
    Swedish National Road and Transport Research Institute, Society, environment and transport, Transport economics Borlänge.
    Traffic violations and insurance data: a note on the role of age, gender, annual mileage and vehicle brand2011Report (Other (popular science, discussion, etc.))
    Abstract [en]

    Risky driving behavior is regarded as being one of the best predictors of traffic accidents. Traffic violations certainly signal risky driving behavior, but the analysis of the linkage of traffic violations, individual and vehicle characteristics and annual mileage has so far been hampered by the difficulty of gaining access to appropriate disaggregate data. The contribution of this paper is that it sets out and explores a rich data set in order to study traffic violations, including both accident involved and accident-free individuals. The data set comprises all insurance policies from Sweden’s largest automobile insurance company covering several years, in total 9.3 million observations, as well as information on fines and convictions for traffic violations. This implies that the methodological issues associated with self-reported violations and only accident involved individuals are disused. The first purpose is to establish the role of age and gender in traffic violations. The second purpose is to make a first attempt to establish whether vehicle owners of status brands are more likely to commit traffic violations. The results support previous findings as well as confirm the association between owners of status brands and traffic violations. The main conclusion is that insurance data provides a viable option when studying behavior, but it also raises new methodological issues.

    Older version: http://swopec.hhs.se/vtiwps/abs/vtiwps2011_003.htm

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  • 5.
    Arvidsson, Sara
    et al.
    Swedish National Road and Transport Research Institute.
    Bagdadi, Omar
    Swedish National Road and Transport Research Institute.
    Nilsson, Jan-Eric
    Swedish National Road and Transport Research Institute.
    Intelligenta försäkringar för person- och lastbilar2006Report (Other (popular science, discussion, etc.))
    Abstract [sv]

    Within the European Union there are annually about 1 300 000 accidents with physical injuries. Estimates indicate that accident costs add up to €160 billion, corresponding to 2 percent of the Union's GDP. On Sweden's roads alone 400-500 people are killed annualy and thousands are injured. Traffic accidents are, like in most other countries, one of the country's national health problems. Substantial resources are allocated to reduce the number of accidents and their consequences, once an accident occurs. The insurance industry is one part in this. The focus of this report is how insurance companies design their insurance premiums and the possibility to change this design in order to curb accident risks. Our starting point is that modern techniques makes it feasible to link the way in which the premium is calculated to actual behaviour. The fast development of in-vehicle "black box" technology provides prerequisits for observing driver behaviour and in particular speed relative to speed limits. By making speeders pay more than drivers that adhere to speed limits, the insurance system may affect average speed on the road network and consequently also the number and consequences of accidents. The report is made up of three parts. The first presents a review of international experiences of "Pay-as-You-Drive" and "Pay-as-You-Speed" applications. The second reviews technical aspects and the options available when selecting an appropriate solution. A third paper presents a blueprint for the way in which an insurance premium based on "Pay-as-You-Speed" could be designed in order to capture important incentive aspects of the system. It is suggested that the insurance industry should go ahead with the development of these techniques. It is, however, also acknowledged that the incentives of the industry may be insuffient to carry the implementation costs. Since society at large carries much more of the accident costs than the industry itself, this provides prima facie motive for government intervention in order to avoid a market failure. It is argued that the costs for establishing an open technical platform in vehicles and to organise the collection of data may be small relative to the potential benefits of the system.

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  • 6.
    Nilsson, Jan-Eric
    et al.
    Swedish National Road and Transport Research Institute, Society, environment and transport, Transport economics Stockholm.
    Arvidsson, Sara
    Swedish National Road and Transport Research Institute, Society, environment and transport, Transport economics Borlänge.
    Hultkrantz, Lars
    Örebro Universitet.
    Voluntary Internalization of Speeding Externalities2012In: Transportation Research Part A: Policy and Practice, ISSN 0965-8564, E-ISSN 1879-2375, Vol. 46, no 6, p. 926-937Article in journal (Refereed)
    Abstract [en]

    High speed is an important determinant of accidents for speeders as well as for other motorists. This paper develops a framework for analyzing instruments that encourage drivers to internalize the full consequences of their behavior with respect to choice of speed using Pay-As-You-Speed (PAYS) insurance, possibly as an extension of Pay-As-You-Drive (PAYD) insurance. We demonstrate how the combination of a Pigovian taxation scheme and PAYS can be designed in a setting involving two principals (the state and an insurance company) that affect the incentives of commuters to choose between driving and other modes of transport and for those that use the car mode to drive carefully. While the government is assumed to maximize overall social efficiency and therefore wants to implement marginal cost pricing, insurance companies do actuarial pricing, i.e. average cost pricing within risk classes that are homogeneous to the degree that the insurers have information about actual behavior. PAYS insurance improves the insurance industry's possibility to differentiate premiums according to behavior and therefore to target risk classes in a better way than today. Moreover, since our framework is designed to accomplish differentiation by self-selection, compulsory regulation is not necessary, although there may be reason for the government to facilitate the implementation of the new technology.

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