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Study on Risk Control about Adverse Selection and Moral Hazard in Catastrophe Insurance Markets

Author: ZengZuo
Tutor: ZhuoZhi
School: Southwestern University of Finance and Economics
Course: Insurance
Keywords: Catastrophe Risk Catastrophe insurance market Information asymmetry Adverse selection Moral hazard
CLC: F224
Type: Master's thesis
Year: 2011
Downloads: 149
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Abstract

Catastrophe is not far from us, nor mysterious. Annual statistics Loading Swiss Re \catastrophic events caused direct losses and indirect hidden more and more to be reckoned with. In order to relieve the pressure of the financial rescue to the country after the catastrophe occurred, and as much as possible, as soon as possible to restore the basic order of life of the hardest hit victims of the disaster, many countries have established a catastrophe insurance system and the system to adapt to the environment of the country, with more mature catastrophe insurance market, and have achieved some success experience. However, for our part, the insurance as the practical operation of the catastrophe risk compensation tool is still a soft underbelly, the delay in the development of the catastrophe insurance market, can not be ignored is that one of the main reasons than general insurance market market more serious adverse selection and moral hazard phenomenon, and the high cost of conventional measures to prevent such problems, thus affecting the insurability of the risk of catastrophe, eventually leading to a situation of market failure. This article from the catastrophe risk characteristics of its insurability of the analysis, the quasi-public goods property catastrophe insurance catastrophe insurance supply of three ways to make elaborate further pointed out that according to the article attributes; and by comparing these three supply way catastrophe insurance market with a common difference of the general insurance market, learn about the general theory of adverse selection and moral hazard model based on the catastrophe insurance market to prevent adverse selection and moral hazard general revelation; finally passed prevent experience of Britain and the United States, Japan, the summarized combined model conclusions and our actual proposed our necessary measure to prevent adverse selection and moral hazard in the process of development of catastrophe insurance market. The following is an overview of the specific content of this article and the main point, a total of five chapters: Chapter 0, the preamble. Elaborated Topics in this article the background, framework, literature review, and research methods. Chapter 1 Overview catastrophe risk. This chapter begins at home and abroad about the connotation of \sense refers to sudden, unforeseen, resulting in the inevitable event to bring the possibility of huge property damage and personal injury to human society; refers to an actual loss caused by the small probability event deviations from the quantitative expected loss, far more than the cumulative actual losses subject to the possibility of loss of affordability. Followed by the kind of catastrophe risk, this research is the natural catastrophe risk, and summarize the risk characteristics to understand the special nature of the catastrophe risk is the basis of this article all subsequent analysis on this basis, the one of the factors generally insurable risk theory as a logical starting point, a more in-depth analysis of the insurability of catastrophe insurance catastrophe risk in line with the tradition of insurability conditions, such non-insurability. serious adverse selection and moral hazard phenomenon from the market as well as high prevention costs. Therefore, in order to enhance the insurability of the risk of catastrophe, we need to find ways to make the control of adverse selection and moral hazard feasibility, this study foothold. Chapter 2, the special nature of the catastrophe insurance market characteristics. This chapter from the characteristics of catastrophe insurance and general insurance, points out that the special catastrophe insurance in its quasi-public goods, and expounded the reasons, and thus, according to the private supply of public goods theory of catastrophe insurance the supply fully supply the existence of private the government entirely supply, private and government joint supply three ways, and that the catastrophe insurance market to the general insurance market mutual difference is that the market structure and the degree of incomplete information in the three supply modes different. On the market structure, the catastrophe insurance market is a non-competitive market, this non-competitive mainly due to the restrictions on market access and the failure of the price mechanism; personal information asymmetry, catastrophe insurance market than the general insurance market Worse still, the resulting adverse selection and moral hazard is more serious and difficult to be digested by the market itself, the main reason is that the information search and monitoring costs (collectively referred to as transaction costs) is too high, you need multi-shared costs Otherwise, the commercial insurance companies to provide catastrophe insurance motive will be very low. Therefore, wishing to control adverse selection and moral hazard on the market in the acceptable range, we must first solve is how to reduce the transaction costs of the insurance company; Second is clear on the basis of cost-sharing body, the main players in the market should be taken measures can effectively prevent adverse selection and moral hazard, which is discussed in the following sections focus. Chapters 3 and 4 adverse selection / moral hazard and catastrophe insurance market. First, two chapters starting from the concept of adverse selection and moral hazard, noting that its manifestations and impact of the catastrophe insurance market, which adverse selection performance of insured catastrophe occurred the higher frequency region residents enthusiasm is much higher than the lower risk area residents as well as residents living in the region just happened catastrophe events tend to insure high enthusiasm in 1,2 years; moral hazard is manifested in a departure from the catastrophe occurred before policyholder protection acts, and catastrophe after the occurrence of the insured and mitigation behavior deviated from potentially fraudulent behavior; whether adverse selection or moral hazard, they will bring the following to the catastrophe insurance market: First, to bring insured losses from bad to worse pressure, and even the market can not be sustained and healthy development; bring a life insurance policy to the policyholder's own second best option, the market allocation of resources reach the optimal. Second, theoretical analysis, adverse selection, Chapter 3 borrowed Rothschid and Stiglitz (1976) the separation equilibrium model and Wilson (1977) the pooling equilibrium model, without considering the moral hazard exists, the general insurance market adverse selection of optimal insurance contract the general insurance market to prevent adverse selection of the optimal contract design for high and low risk rates, the difference between the contract amount, and then through on catastrophe insurance market issues specifically consider flexibility in the use of the model conclusions to arrive in the catastrophe insurance market to prevent the general revelation adverse selection: First, when the country's main face catastrophe risk category is very focused, and the lives and property of the country by greater impact when RS separating equilibrium under differentiated policy design can be considered for catastrophe insurance products in this class risk; Second, when the kind of catastrophic risk facing the country are more dispersed than the surface of the lives and property of the country is affected hours, the corresponding catastrophe insurance products could be considered Wilson confused with unified under the equalization policy of low rates, low amount. As to whether to take a mandatory two cases above, mainly depending on the insurance insurance awareness of the environment and the people of the country. In Chapter 4, the theoretical analysis part mainly uses the loss of a principal-agent model to reduce the type of moral hazard, drawn in losses reduce the type of moral hazard, the optimal insurance contract for some insurance policyholders; When applied in the catastrophe insurance market has the following revelation: one for the the actuarial price insurance policy, set irrespective percentage terms; Fixed Deductibles for \protection and mitigation measures to reduce the risk of moral hazard. Chapter 5, catastrophe insurance market adverse selection and moral hazard specific preventive measures. This chapter to three supply form of typical markets such as Britain, the United States, and Japan as an example, summarized the common in the prevention of adverse selection and moral hazard, combined with the model conclusions and China's national conditions and characteristics, from government, commercial insurance companies the perspective of other social groups to put forward the process of the development of the catastrophe insurance market in China in the necessary measure to prevent these two issues. The end of the article, Conclusion. Mainly a summary description of the full text, and pointed out the lack of research in this article and the letter to be studied. The main contribution of this paper is to: theory and abroad to sort out one of the basic theoretical model study of adverse selection and moral hazard in the general insurance market, taking into account the actual market situation flexibly used in the model conclusions catastrophe insurance market; second practice actively explore and summarize suitable for the duties of catastrophe insurance product design and market players in the prevention of adverse selection and moral hazard, and put forward relevant proposals for the development of our country catastrophe insurance market.

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