Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/98958
Authors: 
Cannon, Edmund
Cipriani, Giam Pietro
Bazar-Rosen, Katia
Year of Publication: 
2014
Series/Report no.: 
IZA Discussion Papers 8172
Abstract: 
We document a large and persistent anomaly in the UK car insurance market over the period 2012-13: insurance companies charged a higher premium for third-party (liability) insurance than comprehensive insurance (which includes third-party). Furthermore, some companies charged higher prices for comprehensive policies with larger deductibles. This evidence suggests both that consumers are too confused or too poorly informed to arbitrage and that sellers of car insurance do not implement the incentive-compatibility constraints at the heart of the adverse-selection model of insurance. This particular insurance market is much less sophisticated than that characterised by modern microeconomic theory.
Subjects: 
car insurance
adverse selection
bounded rationality
JEL: 
D82
G22
Document Type: 
Working Paper

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