A Research into the Asymmetric Information Problem in Taiwan’s Car Insurance Market
Date Issued
2008
Date
2008
Author(s)
Tsai, Ying-Che
Abstract
The paper extends Chiappori and Salanie (2000) to analyze asymmetric information problems in Taiwan’s automobile physical damage insurance market. By using alternative paired proit models, we first investigate whether asymmetric information exists in the market. We further examine whether insurance companies can use pricing system to control asymmetric information problems. Finally, we test whether asymmetric information problems are mainly contributed by small claims, which could be an empirical evidence to argue that the underwriting and auditing systems of insurance companies may help to control asymmetric information problems.hiappori and Salanie (2000) found no empirical support for the existence of asymmetric information in the liability insurance market of France. On the contrary, we find strong empirical evidence to support the existence of asymmetric information in Taiwan’s automobile physical damage insurance market. Our paper demonstrates a further need for the research which tests the existence of asymmetric information by using data from different markets as well as different countries. Moreover, we find that insurance companies could somehow control the asymmetric information problems by their pricing, underwriting, and auditing systems. We find that, after controlling insurance premium, the conditional correlation of policy choices and claims is not significantly different from zero. Furthermore, we find that the conditional correlation of policy choices and claims decreases with respective to an increase of monetary threshold of claims.lthough we find that the asymmetric information problems between the insured and the insurer seems under control by insurance companies, we observe that the population who purchase automobile physical damage insurance has decreased dramatically since 1995. This evidence supports that automobile physical damage insurance market may need further reformed to cope with asymmetric information problems.
Subjects
Asymmetric Information
Adverse Selection
Moral Hazard
Automobile Insurance
Type
thesis
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