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The identification of information problems in different markets is a challenging issue in the economic literature. This paper performs tests of residual asym- metric information in the French automobile insurance market for the 1995-1997 period. This market is characterized by the presence of a regulated experience- rating scheme (bonus-malus). Contract choices are strongly associated with the bonus-malus of policyholders. We have access to longitudinal survey data with dynamic information both on claims and accidents. We propose a causality test to distinguish pathways through which a positive correlation arises between con- tract choice and accidents. We find evidence of moral hazard among a sub-group of policyholders with significant driving experience (5-15 years). We distinguish this moral hazard estimate from adverse selection and learning. Policyholders with less experience have a combination of learning and moral hazard, whereas no residual information problem is found for policyholders with more than 15 years of experience.

Separating Moral Hazard from Adverse Selection in Automobile Insurance: Longitudinal Evidence from France