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Experience rating (called “claim experience rating (CER)” in this study), which provides insurance premium discounts without any claims, is widely known. In line with advances in IT, insurance firms can also introduce a new rating (called “effort experience rating (EER)” in this study), which provides insurance premium discounts in an effort to lower the accident probability. This study aims to investigate the rating that is in equilibrium in the competitive market. In particular, we discuss the possibility of asymmetric outcomes in insurance firms choosing different ratings and the critical factor in deciding the ratings of insurance firms. Our main result is that the maximum disutility level for making an effort is a critical factor to decide the ratings of insurance firms and asymmetric outcomes are achieved when it is not high.
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Mahito Okura (2025) studied this question.
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