TY  - UNPD
A1  - Gemmo, Irina
A1  - Browne, Mark Joseph
A1  - Gründl, Helmut
T1  - Privacy concerns in insurance markets: implications for market equilibria and social welfare
N2  - Telemonitoring devices can be used to screen consumer characteristics and mitigate information asymmetries that lead to adverse selection in insurance markets. Nevertheless, some consumers value their privacy and dislike sharing private information with insurers. In a secondbest efficient Miyazaki-Wilson-Spence (MWS) framework, we allow consumers to reveal their risk type for an individual subjective cost and show analytically how this affects insurance market equilibria as well as social welfare. We find that information disclosure can substitute deductibles for consumers whose transparency aversion is sufficiently low. This can lead to a Pareto improvement of social welfare. Yet, if all consumers are offered cross-subsidizing contracts, the introduction of a screening contract decreases or even eliminates cross-subsidies. Given the prior existence of a cross-subsidizing MWS equilibrium, utility is shifted from individuals who do not reveal their private information to those who choose to reveal. Our analysis informs the discussion on consumer protection in the context of digitalization. It shows that new technologies challenge cross-subsidization in insurance markets, and it stresses the negative externalities that digitalization has on consumers who are unwilling to take part in this development.
T3  - ICIR Working Paper Series - No. 25 [july 2019] 
KW  - Adverse Selection
KW  - Insurance Markets
KW  - Privacy
KW  - Private Information
KW  - Screening
Y1  - 2019
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/77241
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-772419
UR  - https://www.icir.de/fileadmin/user_upload/editors/documents/working_papers/wp_25_2019_privacy_concerns_in_insurance_markets.pdf
VL  - This version: July 2019
PB  - International Center for Insurance Regulation
CY  - Frankfurt am Main
ER  -