Negligence, Ignorance and the Demand for Liability Insurance

Abstract

This paper considers whether lack of information regarding risk exposures can lead to a demand for negligence liability insurance. We find that, under the uniform negligence rule, such as the "reasonable person" standard used to determine negligence in the U.S. and other countries, the value of information is positive and any demand for liability insurance must come from informed individuals. The necessary and sufficient condition is that good risks find it less costly to be negligent and purchase insurance.

The Geneva Risk and Insurance Review 2009: In Quest of Behavioural Insurance

“…24 According to a 1996 Conning & Co. insurance fraud study, ''Insurance Fraud: The Quiet Catastrophe'', it is estimated that P/C insurers detect about 20 per cent of their fraud, while life/disability insurers find about 10 per cent and health care insurers a mere 1 per cent. A June 2000 study by the Insurance Research Council in the U.S. revealed that 35 per cent of Americans surveyed said that it is all right to exaggerate 22 Bajtelsmit and Thistle (2009). 23 Crocker and Doherty (2000).…”