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Cost-Based Pricing and Price-Based Costing in Private Passenger Automobile Insurance

Emilio C. Venezian
The Journal of Risk and Insurance
Vol. 51, No. 3 (Sep., 1984), pp. 433-452
DOI: 10.2307/252478
Stable URL: http://www.jstor.org/stable/252478
Page Count: 20
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Cost-Based Pricing and Price-Based Costing in Private Passenger Automobile Insurance
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Abstract

Decisions regarding who is at fault in automobile accidents are not infallible and may depend on the characteristics of the parties involved. When fault attribution is prone to error, even if the errors are not systematic, cost-based pricing may result in self-fulfilling prophecies regarding cost differentials among drivers. The likely effects of errors in fault attribution between voluntary and residual markets are examined. Data at a highly aggregated level suggest that systematic misattribution of fault may increase the costs allocated to assigned risk plans by as much as 40 percent.

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