Evidence of adverse selection in automobile insurance market: A seemingly unrelated probit modelling

Evidence of adverse selection in automobile insurance market: A seemingly unrelated probit modelling

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The present paper investigates the adverse selection problem by examining the relationship between accident occurrences and deductible choice utilizing a seemingly unrelated probit model that allows for caruso milk thistle best controls for unobserved heterogeneity and endogeneity.While this microeconometric analysis does not consider a multivariate model and considers only two types of contracts, namely, those with high and here low deductibles, it does suggest important implications from applying a recursive bivariate probit.We employ new cross-sectional data on a Tunisian insurance portfolio containing 31,125 policyholders.The results support some evidence for residual adverse selection in the studied insurance portfolio.Moreover, the results suggest the presence of a wealth effect in the decision of the contract choice.