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Government interventions in microinsurance: evidence from China

Author

Listed:
  • Yu Yan

    (Xiamen University)

  • Michael Faure

    (Maastricht University
    Erasmus University Rotterdam)

Abstract

The microinsurance market suffers from severe market failures; thus, government interventions are increasingly used to stimulate its functioning. Our article evaluates, from a law and economics perspective, whether these interventions are effective in increasing access to insurance without inducing moral hazard and adverse selection. We then use this framework to evaluate typical types of government interventions in the Chinese microinsurance market (subsidisation, simplification, use of group policy and established distribution channels). Using practical cases, we further identify solutions to remedy the market frictions induced by government interventions. We find that government interventions are only effective under certain conditions: (1) stable and smartly designed subsidies are provided or innovative market practices are subsidised; (2) insurance policies are easy to understand; (3) product distributors are properly trained or licensed; (4) group policies can be renewed.

Suggested Citation

  • Yu Yan & Michael Faure, 2021. "Government interventions in microinsurance: evidence from China," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 46(3), pages 440-467, July.
    • Handle: RePEc:pal:gpprii:v:46:y:2021:i:3:d:10.1057_s41288-020-00202-6
    DOI: 10.1057/s41288-020-00202-6
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