Embed Size (px)
DESCRIPTION
--Most literatures focus on the asymmetric information between insured and insurer. --Few literatures focus on the asymmetric information caused by provider in health insurance --This paper focus on the asymmetric information caused by provider in automobile insurance of Taiwan
Citation preview
Provider-induced Asymmetric Information in the Insurance Market
Larry Y. TzengJennifer L. WangKili C. WangJen-Hung Wang
Asymmetric information—• Adverse selection• Moral hazardThere is significantly positive
conditionalcorrelation between risk and coverage.• Risk—claim• Coverage—high versus low
--Most literatures focus on the asymmetric information between insured and insurer.
--Few literatures focus on the asymmetric information caused by provider in health insurance
--This paper focus on the asymmetric information caused by provider in automobile insurance of Taiwan
“Provider” in this paper:• Dealer-owned agent (DOA)—who sold automobile as well as automobile insurance, meanwhile he also owned the repair house.• More than 40% of automobile insurance policies are sold through DOA.
In year 2000
DOA Non-DOA
Type A & B contract
0.78 0.52
Accident 0.41 0.23
Why provider induce more sever asymmetric
information? Adverse selection—• DOA sold larger percentage of high coverage
contract– The commission incentive for DOA to sell high
coverage– “obtain better deal” motive for insured to
purchase high coverage • DOA induced greater number of high risk drivers
– “Higher expected repair revenue” incentive for DOA
– Immune form premium penalty for high risk insured
– Get “better car repair service” for high risk insured
Moral hazard—High coverage policies through DOA result in more claim• DOA clear about who has higher
coverage can cover higher loss• DOA owned more information about
car damage caused by accident• Insurer audit DOA less (insurer
tolerate DOA more)
Our hypothesis:
Automobile insurance sold through DOA suffers more severe problems of asymmetric information
Empirical methodologies• Chiappori and Salanie’s (2000) approach --residual correlation from two probit regression• Approach similar to Dionne, Gourieroux & Vanasse (2001) --two stage method
Chiappori and Salanie’s (2000) approach iciXerageob )1(covPr
iaiXaccidentob )1(Pr
)()(
)1()()(
)|(ˆci
ciii
ci
ciiii X
Xyy
XX
yE
)()(
)1()()(
)|(ˆai
aiii
ai
aiiii X
Xzz
XX
zE
n
iii
n
iii
W
1
22
2
1
ˆˆ
)ˆˆ(
Predict: NAA
is the correlation coefficient of i and i
A robust test
1iD
22 ˆˆ
ˆˆˆii
iiiW
let when ,and when 1ˆ iW 0iD 1ˆ iW
XBempenoDob ii 1)1(Pr
Predict: should be significantly positive1
Approach similar to Dionne, Gourieroux & Vanasse (2001) (a) estimate the occurrence of claim in first stage
(b) estimate the choice of coverage in first stage
)()1(Prob 11 iii XXaccident
)ˆ(
),,,ˆ1(covProb
42321
2
iiiii
iiiiii
XDaccidentaccidentdentiacc
XDaccidentaccidentdentiaccerage
)()1(covProb 33 iii XXerage
)covcovˆcov(
),cov,cov,ˆcov1(Prob
84765
4
iiiii
iiiiii
XDerageerageragee
XDerageeragerageeaccident
Predict:
is significantly positive
is significantly positive
3
7
Empirical Results• The asymmetric information do exist in automobile insurance market of Taiwan• The asymmetric information problems in insurance written by DOA are more sever than those through non-DOA channels
– From Chiappori and Salanie’s (2000) approach– From robust test– From Approach similar to Dionne, Gourieroux & Vanasse (2001)
Thank you !All your comments are
welcome !
