Privacy concerns in insurance markets: implications for market equilibria and social welfare

  • 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

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Metadaten
Author:Irina GemmoORCiDGND, Mark Joseph BrowneGND, Helmut GründlGND
URN:urn:nbn:de:hebis:30:3-771730
Series (Serial Number):ICIR Working Paper Series (25/2017 [30.12.18])
Publisher:International Center for Insurance Regulation
Place of publication:Frankfurt am Main
Document Type:Working Paper
Language:English
Year of Completion:2018
Year of first Publication:2018
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2024/04/18
Tag:Adverse Selection; Insurance Markets; Privacy; Private Information; Screening
Edition:Version December 30, 2018
Page Number:51
HeBIS-PPN:518161064
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
JEL-Classification:D Microeconomics / D4 Market Structure and Pricing / D41 Perfect Competition
D Microeconomics / D5 General Equilibrium and Disequilibrium / D52 Incomplete Markets
D Microeconomics / D6 Welfare Economics / D60 General
D Microeconomics / D8 Information, Knowledge, and Uncertainty / D82 Asymmetric and Private Information
G Financial Economics / G2 Financial Institutions and Services / G22 Insurance; Insurance Companies
Sammlungen:Universitätspublikationen
Licence (German):License LogoDeutsches Urheberrecht