insurance markets when firms are asymmetrically informed: a note jason strauss and aidan hollis...
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Insurance Markets When Firms Are Asymmetrically Informed: A Note
Jason Strauss and Aidan HollisUniversity of Calgary
Presenting: Jason Strauss, Candidate, M.A. (Economics)
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Previous Research
• Barros, P., 1993, Freedom of Service and Competition in Insurance Markets: A Note, Geneva Papers on Risk and Insurance.
• Crocker, K. J., and A. Snow, 1986, The Efficiency Effects of Categorical Discrimination in the Insurance Industry, Journal of Political Economy.
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Event data recorders (EDRs), telematics, and GPS systems
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EDRs enable the collection, storage, and transmission of data to an insurer on how a motor vehicle is operated for the purposes of pricing an automobile insurance policy.
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Patents
• Progressive Casualty Insurance Company– U.S. Patent Nos. 5,797,134 and 6,064,970 and 6,868,386. – Canadian Patent Nos. 2,494,638, 2,344,781, and 2235566– UK Patent Application
LICENSEES:
• Aviva Canada Inc.• Norwich Union Insurance Limited, (UK)
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Assumptions
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• Only one insurer is well-informed.
Assumptions
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Assumptions
• Only one insurer is well-informed.• Consumers do not know their risk-type.
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Research Question
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• What are the welfare effects of asymmetrically informed insurers?
Research Question
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• What are the welfare effects of asymmetrically informed insurers?– If insurers can separate low and high risk
consumers with a menu of contracts.
Research Question
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• What are the welfare effects of asymmetrically informed insurers?– If insurers can separate low and high risk
consumers with a menu of contracts.– If insurers cannot separate low and high risk
consumers with a menu of contracts.
Research Question
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Welfare Effects
Scenarios:
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Scenarios:• If insurers can separate risks
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Welfare Effects
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Scenarios:• If insurers can separate risks
• If insurers cannot separate risks
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Welfare Effects
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Scenarios:• If insurers can separate risks
– Welfare Effects are Positive
• If insurers cannot separate risks
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Welfare Effects
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Scenarios:• If insurers can separate risks
– Welfare Effects are Positive
• If insurers cannot separate risks– Consumer Welfare Decreases
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Welfare Effects
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Scenarios:• If insurers can separate risks
– Welfare Effects are Positive
• If insurers cannot separate risks– Consumer Welfare Decreases– Overall Welfare within the R&S world is unchanged
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Welfare Effects
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Scenarios:• If insurers can separate risks
– Welfare Effects are Positive
• If insurers cannot separate risks– Consumer Welfare Decreases– Overall Welfare within the R&S world is unchanged – Well-informed insurer’s profits equal loss in consumer surplus
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Welfare Effects
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Welfare Effects
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Welfare Effects
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Conclusion
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Conclusion• The welfare effects depend on whether
insurers can separate consumers:
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Conclusion• The welfare effects depend on whether
insurers can separate consumers:– If they can, the welfare effects are positive.
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Conclusion• The welfare effects depend on whether
insurers can separate consumers:– If they can, the welfare effects are positive. – If they cannot, consumer surplus decreases but
overall welfare is unchanged, well-informed insurer gains positive profits.
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Conclusion• The welfare effects depend on whether
insurers can separate consumers:– If they can, the welfare effects are positive. – If they cannot, consumer surplus decreases but
overall welfare is unchanged, well-informed insurer gains positive profits.
• When the demand for “driving” is considered, EDR technology could have a negative effect on welfare, but not necessarily.
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Conclusion• The welfare effects depend on whether
insurers can separate consumers:– If they can, the welfare effects are positive. – If they cannot, consumer surplus decreases but
overall welfare is unchanged, well-informed insurer gains positive profits.
• When the demand for “driving” is considered, EDR technology could have a negative effect on welfare, but not necessarily.
• Also, what about privacy? (the topic of our 2nd paper)
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Welfare Effects
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