Experience Rating and Moral Hazard in Insurance Markets, (with Hao Zheng).
Abstract: Experience rating, in which insurance premiums are adjusted based on claim histories, is a common practice in many markets. In this paper, we empirically and theoretically examine how changes in experience rating impact behavioral responses and social welfare. First, we empirically estimate the effects of increasing experience rating on risky driving and ex-post claiming behaviors in the Chinese auto insurance market, by exploiting the staggered rollout of a policy change that increased the penalties for experiencing claims across the nation and leveraging administrative data for a 5% sample of automobile insurance policies in China over four years (more than 7 million policies). We find a decrease in monthly claim rate for liability coverage by 28% (2 claims per 1,000 policies), which can plausibly be attributed to reductions in risky driving and accidents. At the same time, we estimate sizable underreporting of small-sized losses using collision damage coverage claims, over which insureds have more discretion about claiming. Then we develop a model of insurance with experience rating to understand the welfare implications. Our model highlights the key tradeoff that experience rating penalties worsen risk protection but can provide incentives to reduce the moral hazard effects of insurance. Reducing accidents (i.e. ex-ante moral hazard) has a clear welfare benefit, while the welfare benefits of reducing insurance claims ex-post for losses that occurred (i.e. ex-post moral hazard) are ambiguous. Further, using a sufficient statistic derived from the model, we estimate that the policy change of increasing experience rating improves social welfare by about $33 per driver per year.
Presentations: Risk & Insurance Workshop, Department of Risk and Insurance, UW-Madison, Feb. 2024; University of Georgia 2024 Ph.D. Student Research Symposium, University of Georgia, Feb. 2024; S.S. Huebner/ARIA Doctoral Colloquium, Denver CO, Aug. 2024; 2024 Annual Meeting of the American Risk and Insurance Association, Denver CO, Aug. 2024; NBER Insurance Working Group Meeting, Cambridge MA, May 2025; Bozeman Applied Economics Summer Conference, Bozeman MT, Jun. 2025.
Compensation Incentives, Agent Behavior, and Consumer Plan Selection.
(Working paper available on request).
Presentations: 12th Annual Conference of the American Society of Health Economists, St. Louis, MO, Jun. 2023; 2023 Annual Meeting of the American Risk and Insurance Association, Washington DC, Aug. 2023
Choice Frictions and Information Provision in Health Insurance Marketplaces.
(Working paper available on request).
Presentations: Risk & Insurance Seminar, Department of Risk and Insurance, UW-Madison, May 2022; S.S. Huebner/ARIA 3MT & Doctoral Colloquium, Long Beach, CA, Jul. 2022; .
Is Choice Overload a Problem for Health-Plan Choice? Evidence from the US ACA Silver-Loading Policy, (with Chenyuan Liu and Justin Sydnor).
Presentations: 2023 Annual Meeting of the American Risk and Insurance Association, Washington DC, Aug. 2023
Community Rating and Distortions of Relative Prices in Insurance Menus, (with Chenyuan Liu and Justin Sydnor).
Information Gaps and Health Insurance Enrollment: Evidence from the Affordable Care Act Navigator Programs, (with Rebecca Myerson), American Journal of Health Economics, 8.4 (2022): 477-505.
Presentations: University of Georgia 2022 Ph.D. Student Research Symposium, University of Georgia, Mar. 2022; 49th Annual Seminar of the European Group of Risk and Insurance Economists, WU Vienna, Sep. 2022.
Coverage: [Center on Budget and Policy Priorities] [Balloon Juice] [WKOW News] [UW School of Medicine and Public Health Quarterly magazine]
Policy Impact: [Centers for Medicare and Medicaid Services]
Personalized Telephone Outreach Increased Health Insurance Take-Up for Hard-To-Reach Populations, But Challenges Remain, (with Rebecca Myerson, Nicholas Tilipman, Andrew Fehrer, Wesley Yin, and Isaac Menashe), Health Affairs, 41.1 (2022): 129-137.
Coverage: [Office of the Assistant Secretary for Planning and Evaluation (ASPE)] [The Brookings Institution] [JPAL]
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