Exploring the Role of Pseudodeductibles in Auto Insurance Claims Reporting

Abstract: Many who purchase insurance understand that by reporting covered losses to their insurers they increase the chances of future premium increases or reductions in insurance coverage. If under such circumstances a policyholder decides not to report an otherwise covered loss, the policyholder is effectively displaying the presence of a “pseudodeductible. ” That is, given a covered loss occurs, a policyholder may define a personal and unobservable threshold that is greater than any stated deductible in the policy below which an insurance claim for the loss will not be reported. The scant amount of empirical research on this topic suffers from a lack of information about losses for which insurance claims were never filed. This research relies on a unique dataset that captures when policyholders choose to forgo insurance claims and why. The findings increase our understanding of the role that pseudodeductibles play in the claims reporting behavior of policyholders. [Key words: deductibles, claims, auto insurance]