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Adverse Selection and Private Health Insurance Coverage in India - A Rational Behaviour Model of Insurance Agents under Asymmetric Information

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  • Sukumar Vellakkal

    (Indian Council for Research on International Economic Relations)

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    Abstract

    In the backdrop of the low level of health insurance coverage in India, this study examines the determinants of the scaling-up process of health insurance by analyzing the rational behaviour of an insurance agent facing a trade-off between selling health insurance and other forms of insurance subject to his limited time and efforts, and the implications of such behaviour on adverse selection and equity. The paper presents various pre-conditions affecting the rational behaviour of insurance agents and also discusses two new concepts insurance habit and asymmetric information on health insurance schemes. Further, the study examines various strategies followed by insurance agents for maximizing their net incomes. The theoretical proposition is empirically validated by applying a binary Probit model and the primary data collected by the author is used in this context. The study concludes that given the existing incentive systems in the Indian insurance market for promoting various forms of insurance, the low level of insurance awareness among the general public, coupled with the dominant role of insurance agents in the market results in a situation of : 1. Low level of health insurance coverage, 2. No adverse selection and 3. Inequity in health insurance coverage.

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    File URL: http://saber.eaber.org/node/22270
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    Bibliographic Info

    Paper provided by East Asian Bureau of Economic Research in its series Microeconomics Working Papers with number 22270.

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    Date of creation: Jan 2009
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    Handle: RePEc:eab:microe:22270

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    Related research

    Keywords: Health Insurance; Insurance Agent; Asymmetric Information; Adverse Selection and Insurance Habit;

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    1. Cameron, A C & P. K. Trivedi & Frank Milne & J. Piggott, 1988. "A Microeconometric Model of the Demand for Health Care and Health Insurance in Australia," Review of Economic Studies, Wiley Blackwell, vol. 55(1), pages 85-106, January.
    2. Hajime Miyazaki, 1977. "The Rat Race and Internal Labor Markets," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 394-418, Autumn.
    3. van de Ven, Wynand P. M. M. & van Vliet, ReneC. J. A., 1995. "Consumer information surplus and adverse selection in competitive health insurance markets: An empirical study," Journal of Health Economics, Elsevier, vol. 14(2), pages 149-169, June.
    4. Marquis, M. Susan, 1992. "Adverse selection with a multiple choice among health insurance plans: A simulation analysis," Journal of Health Economics, Elsevier, vol. 11(2), pages 129-151, August.
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