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Insurance Markets With Differential Information

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  • S. Hun Seog

Abstract

This article attempts to understand the outcomes when each party of an insurance contract simultaneously has superior information. I assume that policyholders have superior information about specific risks while insurers have superior information about general risks. I find that low‐general‐risk policyholders purchase insurance, while high‐general‐risk policyholders are self‐insured. Among the low‐general‐risk policyholders, high‐specific‐risk policyholders purchase full insurance, while low‐specific‐risk policyholders purchase partial insurance. When insurers can strategically publicize their information, efficiency is improved because high‐general‐risk policyholders purchase actuarially fair insurance. The market segmentation is also found based on the general‐risk type and the publicizing of information.

Suggested Citation

  • S. Hun Seog, 2009. "Insurance Markets With Differential Information," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 76(2), pages 279-294, June.
    • Handle: RePEc:bla:jrinsu:v:76:y:2009:i:2:p:279-294
    DOI: 10.1111/j.1539-6975.2009.01299.x
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    Cited by:

    1. Deryugina, Tatyana, 2012. "Does Selection in Insurance Markets Always Favor Buyers?," MPRA Paper 53583, University Library of Munich, Germany.
    2. Florian Schreiber, 2017. "Identification of customer groups in the German term life market: a benefit segmentation," Annals of Operations Research, Springer, vol. 254(1), pages 365-399, July.
    3. Alexander Bohnert & Albrecht Fritzsche & Shirley Gregor, 2019. "Digital agendas in the insurance industry: the importance of comprehensive approaches†," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 44(1), pages 1-19, January.
    4. Laura Abrardi & Luca Colombo & Piero Tedeschi, 2019. "The Gains of Ignoring Risk: Insurance with Better Informed Principals," DISCE - Working Papers del Dipartimento di Economia e Finanza def084, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    5. Rachel J. Huang & Arthur Snow & Larry Y. Tzeng, 2017. "Advantageous Selection in Insurance Markets with Compound Risk," The Geneva Papers on Risk and Insurance Theory, Springer;International Association for the Study of Insurance Economics (The Geneva Association), vol. 42(2), pages 171-192, September.
    6. Wu, T.C. Michael & Yang, C.C., 2012. "The welfare effect of income tax deductions for losses as insurance: Insured- versus insurer-sided adverse selection," Economic Modelling, Elsevier, vol. 29(6), pages 2641-2645.

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