The dynamics of one-sided incomplete information in motor disputes

Abstract

The paper examines the distribution function of settlements over time in an attempt to explain the time it takes to negotiate the claim compensation in the context of motor disputes. Competing risk models are applied to a Spanish motor insurance database. The empirical analysis yielded two main findings. First, in some cases the severity of temporary injuries was found to be negatively associated with the time to settlement of the claim, suggesting that more severe cases do not always take longer to settle; this supports the assumption that the time to settlement depends primarily on the degree of informational asymmetry among litigants regarding the magnitude of damages. Second, time-varying effects were observed for the explanatory factors related to the victim's age and the seriousness of injuries. The effect of these factors on the time to settlement of the claim is attenuated over time, suggesting that the asymmetries in information present a dynamic pattern during the negotiation process, since the insurer's incomplete information is enriched during the course of negotiations.