Decomposing Asymmetric Information in China's Automobile Insurance Market

Feng Gao, Michael R. Powers and Jun Wang

Journal of Risk & Insurance, 2017, vol. 84, issue 4, 1269-1293

Abstract: Distinguishing between adverse selection and moral hazard is a difficult but important issue in insurance economics. In the present work, we model and evaluate the distinct roles of adverse selection, ex ante moral hazard, and ex post moral hazard in China's automobile insurance market. Our econometric analysis supports the following conclusions: (1) the effect of asymmetric information on the probability of claims is significant; (2) the effect of ex ante moral hazard on the probability of claims is not significant, establishing adverse selection as the underlying source of information asymmetry; (3) the effect of asymmetric information (including ex ante moral hazard) on the severity of claims is not significant; and (4) the impact of ex post moral hazard on claim severity is significant for a subset of lower‐coverage policyholders. Consequently, it may be advisable for Chinese automobile insurance companies to allocate greater resources to both underwriting (i.e., selecting policyholders) and auditing claims.

Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://doi.org/10.1111/jori.12155

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jrinsu:v:84:y:2017:i:4:p:1269-1293

Ordering information: This journal article can be ordered from
http://www.wiley.com/bw/subs.asp?ref=0022-4367

Access Statistics for this article

Journal of Risk & Insurance is currently edited by Joan T. Schmit

More articles in Journal of Risk & Insurance from The American Risk and Insurance Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().