Do Insurance Firms Learn From Repeated Contracts? - Evidence From the Korean Auto Insurance Market-

Abstract

With a large data set from Korean auto insurance market, this article examines the relationship between policyholders risk and the age of policies. Claim risk decreases with policy age, especially due to the decrease in claim frequency as contracts are repeated. Findings are consistent with theory on asymmetric learning and support the existence of an informational monopoly of an incumbent insurer in the Korean auto insurance market. Investigation on policies in the residual market further implies the strategic behavior of insurance companies based on their informational advantage.