Friday posts are always more on the quirky side of finance and sometimes just a pure WTF moment. One such moment occurred when I read a paper by Chao Ma from Xiamen University, who investigated the behaviour of Chinese drivers. Personally, I am a pretty careful driver who has not had an accident in almost 15 years and who is obsessed with keeping his premium discount for accident-free driving. In most countries, and this includes China, drivers get a discount on their car insurance for driving accident-free.
The graph does not surprise me. I am however sceptical that this is due to the sunk cost fallacy -- I consider it much more likely that previously unreported damage is reported near the end of the policy as a 'new accident', possibly right before the policyholder changes their insurer. There are clear signs of this in the data ("conditional on an accident occurring, it incurs lower payments from the insurance company on average and is less likely to cause bodily injuries if it occurs in the last month than if it occurs in other months." -- ie the vehicle was still drivable and/or damage was minor).
At autonomous level 3 or better, what does the actuarial math look like for future car insurance premium ? 🤫
The graph does not surprise me. I am however sceptical that this is due to the sunk cost fallacy -- I consider it much more likely that previously unreported damage is reported near the end of the policy as a 'new accident', possibly right before the policyholder changes their insurer. There are clear signs of this in the data ("conditional on an accident occurring, it incurs lower payments from the insurance company on average and is less likely to cause bodily injuries if it occurs in the last month than if it occurs in other months." -- ie the vehicle was still drivable and/or damage was minor).