We investigate the cost of legal restrictions on experience rating in auto and home insurance. The cost is an opportunity cost as experience rating can mitigate the problems associated with unobserved heterogeneity in claim risk, including mispriced coverage and resulting demand distortions. We assess this cost through a counterfactual analysis in which we explore how risk predictions, premiums, and demand in home insurance and two lines of auto insurance would respond to unrestricted multiline experience rating. Using claims data from a large sample of households, we first estimate the variance‐covariance matrix of unobserved heterogeneity in claim risk. We then show that conditioning on claims experience leads to material refinements of predicted claim rates. Last, we assess how households’ demand for coverage would respond to multiline experience rating. We find that the demand response would be large.

中文翻译：

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法律限制经验评级的成本

我们调查对汽车和家庭保险中的经验等级进行法律限制的成本。成本是机会成本，因为经验评估可以缓解与索赔风险中未观察到的异质性相关的问题，包括定价错误和导致需求扭曲。我们通过反事实分析来评估此成本，在该反事实分析中，我们探讨了房屋保险和两条汽车保险的风险预测，保费和需求将如何响应无限制的多行经验等级。使用来自大量家庭样本的索赔数据，我们首先估计索赔风险中未观察到的异质性的方差-协方差矩阵。然后，我们证明以索赔经验为条件可对预计索赔率进行重大改进。持续，我们评估了家庭对保险的需求将如何响应多线体验评级。我们发现需求响应会很大。