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Do Insurance Companies Possess an Informational Monopoly? Empirical Evidence from Auto Insurance

This article investigates the impact of policyholder tenure on contractual relationships in nonlife insurance markets. For a sample of auto insurance policies, we find that average risk decreases with policyholder tenure, but the effect is entirely due to the impact of observable information. We reject the hypothesis that the incumbent insurer is privately learning faster about quality of their policyholders. We highlight the importance of a public signal regarding policyholders' claims experiences and suggest alternative explanations for the unconditional relationships in the data.