Insurance Markets and Asymmetric Information

Abstract

This chapter deals with a property of insurance markets that has been repeatedly mentioned before (e.g. in Sects. 4.3, 5.5, and 5.6): Information may be distributed in an unequal way between the insurance company (IC) and the buyer of insurance (IB). Whereas in the markets for personal services, it is the consumer who is thought to suffer from a lack of information (patients vis-à-vis physicians e.g.), it is usually the supplier in the case of financial services. For instance, the applicant for a credit and not the bank is better capable of judging the chances of success of the project to be financed. Likewise, it is the IB and not the IC who is better able to gauge the probability of a loss occurring in the future.