The availability of big data and analytics expertise provides insurers with informational advantages over policyholders in estimating risk. We study competition between heterogeneously informed insurers, showing that their information may or may not be revealed in equilibrium. We find that all equilibria are profitable and that noninformative equilibria entail risk pooling and possibly efficiency. In informative equilibria, the signaling problem interacts with the screening problem that arises endogenously from insurers' revelation of information, implying underinsurance. Our main insights are robust to changes in insurers' information precision and market concentration and to the presence of two-sided asymmetric information and withdrawable contracts.

Pretending Ignorance Is Bliss: Competing Insurers with Heterogeneous Informational Advantages / Abrardi, Laura; Colombo, Luca; Tedeschi, Piero. - In: THE REVIEW OF FINANCIAL STUDIES. - ISSN 0893-9454. - (2024). [10.1093/rfs/hhae079]

Pretending Ignorance Is Bliss: Competing Insurers with Heterogeneous Informational Advantages

Abrardi, Laura;Colombo, Luca;
2024

Abstract

The availability of big data and analytics expertise provides insurers with informational advantages over policyholders in estimating risk. We study competition between heterogeneously informed insurers, showing that their information may or may not be revealed in equilibrium. We find that all equilibria are profitable and that noninformative equilibria entail risk pooling and possibly efficiency. In informative equilibria, the signaling problem interacts with the screening problem that arises endogenously from insurers' revelation of information, implying underinsurance. Our main insights are robust to changes in insurers' information precision and market concentration and to the presence of two-sided asymmetric information and withdrawable contracts.
File in questo prodotto:
File Dimensione Formato  
hhae079.pdf

accesso aperto

Tipologia: 2. Post-print / Author's Accepted Manuscript
Licenza: PUBBLICO - Tutti i diritti riservati
Dimensione 540.01 kB
Formato Adobe PDF
540.01 kB Adobe PDF Visualizza/Apri
Pubblicazioni consigliate

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11583/2994892