Propitious selection in insurance

The theory of propitious selection suggests that there are risk-avoiding personalities who both take physical precautions and buy financial security (insurance). Conversely, there are risk seekers who tend to do neither. Survey evidence is presented that is consistent with the theory. Individuals who obtain motor vehicle liability coverage are less likely than others to drink-and-drive, and are more likely to engage in health-beneficial (risk-avoiding) behaviors. Propitious selection may be a general phenomenon promoting favorable selection in many real world insurance markets.This research was supported by the Harvard Injury Control Center, funded by the Centers for Disease Control. Special thanks to Jennifer Carter, Sara Solnick, and also to Beth Sprinkel of the Insurance Research Council. Useful suggestions were received from Eric Latimer, Roger Davis, Marcello Pagano, and anonymous reviewers. The raw data were obtained from the Roper Center for Public Opinion Research in Storrs, Connecticut.