Adverse Selection and the Opaqueness of Insurers

Tao Zhang, Larry A. Cox and Robert A. Van Ness

Journal of Risk & Insurance, 2009, vol. 76, issue 2, 295-321

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.

Date: 2009
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https://doi.org/10.1111/j.1539-6975.2009.01300.x

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Persistent link: https://EconPapers.repec.org/RePEc:bla:jrinsu:v:76:y:2009:i:2:p:295-321

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