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How risky are uninsured drivers?
Örebro University, Örebro University School of Business.
(English)Manuscript (preprint) (Other academic)
Abstract [en]

Obtaining insurance is expected to have disincentive effects on driver behavior, and as such on accident probabilities due to the adverse selection and/or moral hazard effects, though empirical studies provide mixed evidence. The risks of an accident incurred by uninsured drivers are, however, indeterminate as well, because of the unavailability of individual level data on uninsured drivers. Therefore, the purpose of this paper is to empirically analyze whether insured or uninsured drivers pose greater accident risks. It uses unique individual level data on privately owned insured and uninsured passenger vehicles in Sweden for the period 2006-2010.

The results show that the accident probability of uninsured drivers is 34 percentage points higher than for insured drivers, with uninsured drivers aged 25-34 posing the highest risk of an accident. This implies that uninsured drivers are a high risk group and a significant threat to traffic safety. Possible solutions and policy implications are discussed at the end of the paper.

Keywords [en]
vehicle insurance, uninsured drivers, traffic accident
National Category
Economics
Research subject
Economics
Identifiers
URN: urn:nbn:se:oru:diva-38904OAI: oai:DiVA.org:oru-38904DiVA, id: diva2:765133
Available from: 2014-11-21 Created: 2014-11-21 Last updated: 2017-10-17Bibliographically approved
In thesis
1. A study of asymmetric information problems in vehicle insurance
Open this publication in new window or tab >>A study of asymmetric information problems in vehicle insurance
2014 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

Insurance is an indispensable part of modern welfare systems. It provides financial protection against unexpected losses and facilitates security and efficiency. Despite these benefits, the insurance literature predicts distortive effects of insurance provision in the form of asymmetric information problems such as adverse selection and moral hazard. However, empirical evidence does not provide unambiguous support for this theoretical prediction.

This dissertation empirically examines a theoretical prediction of the presence of asymmetric information problems in the case of vehicle insurance.

Essay 1 analyzes the effects of a tax reform in Sweden that raised the price of vehicle insurance. The results indicate that the tax reform has increased the odds of switching to lower insurance coverage, in particular among older drivers. However, this switching behavior has not resulted in a significant change of driver behavior in terms of claims.

Essay 2 uses a two-stage procedure to test for the presence of asymmetric information problems in the provision of vehicle insurance. In the first stage, we check for the presence of residual asymmetric information; in the second stage, we identify the source of the information problem, i.e. either adverse selection or moral hazard, or both. Our findings from the first stage estimation indicate the presence of residual asymmetric information in the choice of full insurance with a low deductible. The second stage estimation results reveal that the source of this information problem is moral hazard.

Essay 3 analyzes the impact of insurance on the probability of accidents by investigating the accident risk of insured and uninsured drivers. The results show that uninsured drivers have a higher probability of causing an accident than insured drivers, and that uninsured drivers aged 25-34 pose a greater accident risk than uninsured drivers in other age categories.

Place, publisher, year, edition, pages
Örebro: Örebro university, 2014. p. 30
Series
Örebro Studies in Economics, ISSN 1651-8896 ; 27
Keywords
asymmetric information, insurance, moral hazard, traffic safety
National Category
Economics
Research subject
Economics
Identifiers
urn:nbn:se:oru:diva-36150 (URN)978-91-7529-043-0 (ISBN)
Public defence
2014-10-17, Forumhuset, Biografen, Örebro universitet, Fakultetsgatan 1, Örebro, 13:15 (English)
Opponent
Supervisors
Available from: 2014-08-28 Created: 2014-08-28 Last updated: 2017-10-17Bibliographically approved

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Yarmukhamedov, Sherzod

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CiteExportLink to record
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Citation style
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