Dynamic Risk Classification in a Law and Economics Perspective: The Italian Experience

The first part of this paper deals with a review of the traditional theory outlining the possible role of risk classification as a remedy to asymmetric information problems that characterized the insurance market. Then, as opposed to the traditional "static" risk classification, we consider what we call "dynamic" risk classification involving a consideration of variables of different quality. We particularly refer to the recent trend in considering variables relative to the life, the experience, the behaviour, and the history of the insured individuals. The increasing use of risk classification and its development is also directly related to competition on the market and the liberalisation process of the Italian motor liability insurance market had important effects on how the insurance companies structure the policies using an increasing quantity of variables to classify the customers. Finally, in the third part, we propose an economic analysis of the problem of the efficient implementation of the new "dynamic" risk classification, and the consequent customer segmentation, with specific reference to the case of an Italian insurance company