The Influential Factors Of Purchasing Motor Vehicle Liability Insurance And Its Empirical Analysis

With the development of China’s economy, motor vehicles are purchased by more and the number of traffic accidents is rising. In order to increase the compensation ability of the responsible party and to guarantee the interests of the victims, China’s Road Traffic Safety Law was enacted in2004, in which the system of the compulsory third party liability insurance for motor vehicles is first proposed. In2006, it was formally implemented. This insurance system stipulates the limitation of liabilities and the scope of indemnity, the aggregate amount of which is only122000RMB, a pretty low level of insurance. Thus, people need to purchase commercial liability insurance as a supplement. However, since the commercial liability insurance is open to free purchase, difference occurs when people consider the questions such as whether to buy or not, and how much to buy. The reason is that in addition to the level of objective risk and other external constraints, the level of subjective perception of risk is also a very important factor. Hence, to study the factors of risk perception can not only help people make rational choices but also provide guidance to insurance companies for sustainable management and to commercial insurance industry for sound development. I think the special system in China has just provided a perfect object of study.The process of "purchasing decision-making" can be roughly divided into two phases:the perception of risk and the purchase. Due to the subjectivity of risk perception and the limitation of attainable statistics, this paper only studies the second phase. Through extracting insurance policies of family cars to differentiate statistics of those who only buy the motor vehicle accident liability compulsory insurance and of those who buy additionally the commercial third-party insurance, I build the Probit model to analyze the influential factors of people’s purchasing decision-making from variables such as the applicant’s personal character, features of the bought vehicle, features of the applicant’s purchasing habit and the applicant’s way of claiming for compensation. I also try to explain people’s insurance choice from the perspective of risk perception.The main contents of this paper are as follows:The first chapter mainly introduces the research background, the purpose and the significance of study, the research status both in and out of China, and the research method etc.Chapter two explains the theory and the model of risk perception and decision-making, including the content, the structure and the influential factors of risk perception. It also introduces the adverse selection model during applicant’s decision-making.The third chapter mainly introduces the system of the third party compulsory liability insurance for motor vehicles, including the system of the third party compulsory liability insurance in and out of China, and the difference between the third party compulsory liability insurance and the commercial third party liability insurance.In the fourth chapter, an empirical model is designed according to the attainable statistics, through the data are tested and the results analyzed. In chapter five, I put forward strategies and suggestions, based on previous theoretical and empirical analysis, to tackle the problems present in the development of motor vehicle insurance market in China.This article’s main innovation lies in:(1) This paper uniquely targets commercial third party liability insurance for the study of the influential factors for risk perception. As supplement to the compulsory insurance, the car owners must make purchasing choices when they buy the compulsory traffic accident liability insurance. Further, since the choice of such insurance is not subject to external influences such as the type and the price of the car, whether the applicant buys the insurance or not, or how much he/she buys are all open to choose. Thus, it can reflect people’s risk perception better.(2) This paper adopts empirical method to analyze the relationship between the features such as gender, age and wage of the applicants and how much they purchase insurance, through examining different variables. The factors that influence people’s perception of risk are also explained.(3) Different from domestic researches which use macro-data to analyze risk perception, this paper uses micro-data. Through analyzing the direct evidences of the actual applicants’ risk evaluation, this study is more convincing.The deficiencies of this paper are:(1) The influencing factors purchasing behavior are complicated and there may be a correlation between these factors. It is possible that, errors in variable selection caused by thoughtlessness and the limitation of statistics sources will affect the econometric results.(2) At present, quantitative studies in this area are few and this study is based on previous ones of their methods to analyze and explain. Thus, inconsistency may occur where improper form of parameter is used to count and analyze.(3) Due to the limited attainable statistics, the statistics used in this paper only cover one year of the policy-holder’s situation. The use of long-term statistics is encouraged in future studies so as to better reflect the applicant’s condition.