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Adverse Selection and the Opaqueness of Insurers

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  • Tao Zhang
  • Larry A. Cox
  • Robert A. Van Ness
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    Abstract

    While adverse selection problems between insureds and insurers are well known to insurance researchers, few explore adverse selection in the insurance industry from a capital markets perspective. This study examines adverse selection in the quoted prices of insurers' common stocks with a particular focus on the opacity of both asset portfolios and underwriting liabilities. We find that more opaque underwriting lines result in greater adverse selection costs for property-casualty (P-C) insurers. A similar effect is not apparent for life-health (L-H) insurers and we find no effect of asset opaqueness on adverse selection for either L-H or P-C insurers. Copyright (c) The Journal of Risk and Insurance, 2009.

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    Bibliographic Info

    Article provided by The American Risk and Insurance Association in its journal Journal of Risk and Insurance.

    Volume (Year): 76 (2009)
    Issue (Month): 2 ()
    Pages: 295-321

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    Handle: RePEc:bla:jrinsu:v:76:y:2009:i:2:p:295-321

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    Cited by:
    1. Flannery, Mark J. & Kwan, Simon H. & Nimalendran, Mahendrarajah, 2013. "The 2007–2009 financial crisis and bank opaqueness," Journal of Financial Intermediation, Elsevier, vol. 22(1), pages 55-84.

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