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Effects of Insurance Incentives on Road Safety: Evidence from a Natural Experiment in China *
Author(s) -
Dionne Georges,
Liu Ying
Publication year - 2021
Publication title -
the scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/sjoe.12402
Subject(s) - moral hazard , incentive , china , natural experiment , empirical evidence , actuarial science , economics , automobile insurance , hazard , public economics , microeconomics , political science , law , philosophy , statistics , chemistry , mathematics , organic chemistry , epistemology
We contribute to the growing body of literature on moral hazard by offering empirical evidence of the effectiveness of insurance pricing incentives at improving road safety. We do this by comparing the claim frequency following a regulatory reform introduced in a pilot city in China, with the experience of another city unaffected by the reform. By using a difference‐in‐differences methodology, we find that improving insurance pricing on past claims and on traffic violations with full industry commitment reduces moral hazard and insured drivers’ claim frequency by 12 percent. The treatment effects are, however, heterogeneous with respect to insured drivers’ wealth and their history of past claims.