Using data on claims experience in auto and home insurance, we estimate the variance-covariance matrix of unobserved heterogeneity in claim risk and explore how the demand for coverage would respond to multiline experience rating under different theories of risky choice. Our analysis sheds light on the potential for unpriced heterogeneity to distort the demand for insurance.
Scholarly Commons Citation
Barseghyan, Levon; Molinari, Francesca; Morris, Darcy Steeg; and Teitelbaum, Joshua C., "Unobserved Heterogeneity, Experience Rating, and Insurance Demand" (2016). Georgetown Law Faculty Publications and Other Works. 1127.