In automobile insurance, the “contract timing effect” under Bonus-Malus System - there are fewer and fewer claims as time approaches to the end of a contract year - would bias the test of moral hazard. While the Expected Utility model cannot explain this phenomenon, we aim to unravel it by a...

Moral hazard is a critical issue in automobile insurance claiming behavior. However, empirical studies show that the "contract timing effect" - there are fewer and fewer claims as the time approaches to the end of each contract year - would bias the test of moral hazard under the Bonus-Malus...