This paper develops a self-selection rationale for the use of commodity bundling in the case of savings-type casualty insurance in Japan. The savings-cum-insurance bundle is described in detail. Two alternative models to explain its success are presented. The moral hazard model assumes that casualty insurance claims depend on unobservable actions of the insured (lack of care), while the adverse selection model centers around the assumption that consumers have private information about their exogenous claim probability. The likelihood of a claim is inversely related to personal income, because preventive safety measures are normal goods. The evidence from casualty insurance in Japan supports the adverse selection theory, while the moral hazard model is inconsistent with some of the institutional and empirical facts.
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