Academic journal article Journal of Risk and Insurance

Age and Gender Effects on Auto Liability Insurance Payouts

Academic journal article Journal of Risk and Insurance

Age and Gender Effects on Auto Liability Insurance Payouts

Article excerpt


We examine the relationship between claimant demographic characteristics (specifically, gender, age, and marital status) and the relative size of automobile third-party settlements. We present three possible theories to explain differences in payouts associated with gender and age: variations in risk attitudes, variations in negotiating costs, and discrimination. Results of empirical testing are consistent with differences in settlement amounts, particularly with respect to gender. These differences are examined and discussed along with suggestions for future research.


The automobile is one of the most widely owned major assets in the United States. It is also the most likely source of individual liability. In 2002, more than 18.3 million accidents occurred on U.S. roads and highways, involving in excess of 30 million vehicles, injuring over 2.9 million, and killing more than 42,000. (U.S. Census Bureau, Statistical Abstract of the United States 2004-05). Automobile liability claims affect many Americans, both claimants and defendant drivers, and the consequences of settlement decisions are far reaching. Auto liability settlement amounts are influenced by many factors such as the claimant's degree of fault in causing the accident, the extent of the claimant's bodily injury, state negligence rules, and attorney involvement. Our purpose here is to investigate whether claimant demographics (namely, gender and age) also affect third-party payments.

Other economic research to date provides reasons for potential differences in claimant payouts, namely, variations in claimant risk attitude, differences in negotiating preferences, and outright discrimination. The prior literature provides evidence of risk-aversion differences as a function of gender and age. Levin, Snyder, and Chapman (1988), Powell and Ansic (1997), Jianakoplos and Bernasek (1998), Sunden and Surette (1998), and Schubert et al. (1999), in fact, all find that women are more risk averse than men in a variety of financial (i.e., speculative) decision-making contexts. Halek and Eisenhauer (2001) find greater relative risk aversion for women and the elderly for both pure and speculative risks. Brown (1987) and Riley and Chow (1992) also find greater relative risk aversion for the elderly.

Prior studies also provide evidence of negotiation differences as a function of gender and age. Stuhlmacher and Walters (1999) show that women are more conflict averse in dispute settlement and negotiate less successful outcomes than men. Others provide evidence consistent with greater negotiation costs for women and the elderly, resulting in preferences for shorter negotiations with relatively lower payoffs holding other factors constant (see, e.g., Gallos, 1993; Graddy and Pistaferri, 2000). In a variety of other studies, gender, marital status, and sometimes age are used simply as control variables.

Doerpinghaus, Schmit, and Yeh (2003) test for gender and age effects on fault determination in automobile liability claims. They find that female, elderly, and youthful drivers are assessed higher levels of fault, even after controlling for other relevant factors such as driving violations, type and severity of injury, and legal jurisdiction. We take their study one step further to test whether women, elderly, and youthful (as well as married) claimants receive different payments for similar injuries. Fault assessment would be just one factor in payment determination. We also include a joint estimation with time-to-settlement.

For this purpose, we follow Picard (2000), Crocker and Tennyson (2002), and Loughran (2003) in developing a theoretical model of third-party (i.e., liability) claims payment. Our model accommodates lower payments to risk-averse claimants, those with higher negotiating costs, or those who are subject to discrimination ceteris paribus. …

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