The impact of adjuster moral hazard on driving records
Date
2009
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Society of Actuaries
Abstract
In a first-party recovery scheme for automobile property damage, the first-party insurer compensates
not-at-fault vehicular damage. In this scheme, adjusters may not have the incentive to assign
liability when the driver is, in fact, at fault for the accident. This is due to adjusters not having to
coordinate with a third-party adjuster, and, for insureds that carry collision coverage, the assignment
of fault does not appreciably affect the compensation paid out. This in turn reduces the
effectiveness of the experience-rating component of the insurance premium. Empirical evidence
that supports the presence of incorrect fault assignment is provided. A stochastic model of experience
rating analyzing the impact of incorrect fault assignment on driving record classes confirms
that low-risk insureds pay more for insurance than if fault was correctly assigned.
Description
© Society of Actuaries, Schaumburg, Illinois. Posted with permission granted August 5, 2011.
Keywords
Automobile insurance, Stochastic models
Citation
Mary Kelly, Sapna Isotuba and Anne Kleffner "The impact of adjuster moral hazard on driving records: North American Actuarial Journal 13: 425-437: 2009