How do markets for insurance use no-claim bonuses to cope with private information?

What will be an ideal response?

"No-claim" bonuses are commonly used in auto insurance. One of the most important pieces of information a person can give an auto insurance company is his or her propensity to drive safely and avoid accidents. However, this information is only believable to the extent that driving records really do differentiate good drivers from bad drivers. Driving records cover only a short period of time and, randomly, some bad drivers will establish good records. So a good driving record is not a guarantee that the driver is a safe driver. The screening device that insurance companies use to overcome this potential problem is the "no-claim" bonuses that drivers accumulate when they do not make an insurance claim. Presumably, having not made a claim means that you were a good driver and did not need to make a claim!