1. Provider-induced Asymmetric Information in the Insurance Market Larry Y. Tzeng Jennifer L. Wang Kili C. Wang Jen-Hung Wang

2. Asymmetric information— Adverse selection Moral hazard There is significantly positive conditional correlation between risk and coverage. Risk—claim Coverage—high versus low

3. --Most literatures focus on the asymmetric information between insured and insurer. --Few literatures focus on the asymmetric information caused by provider in health insurance --This paper focus on the asymmetric information caused by provider in automobile insurance of Taiwan

4. “Provider” in this paper: Dealer-owned agent (DOA)—who sold automobile as well as automobile insurance, meanwhile he also owned the repair house. More than 40% of automobile insurance policies are sold through DOA.

5. In year 2000 DOANon-DOA Type A & B contract 0.780.52 Accident0.410.23

6. Why provider induce more sever asymmetric information? Adverse selection— DOA sold larger percentage of high coverage contract –The commission incentive for DOA to sell high coverage –“obtain better deal” motive for insured to purchase high coverage DOA induced greater number of high risk drivers –“Higher expected repair revenue” incentive for DOA –Immune form premium penalty for high risk insured –Get “better car repair service” for high risk insured

7. Moral hazard— High coverage policies through DOA result in more claim DOA clear about who has higher coverage can cover higher loss DOA owned more information about car damage caused by accident Insurer audit DOA less (insurer tolerate DOA more)

8. Our hypothesis: Automobile insurance sold through DOA suffers more severe problems of asymmetric information

9. Empirical methodologies Chiappori and Salanie’s (2000) approach --residual correlation from two probit regression Approach similar to Dionne, Gourieroux & Vanasse (2001) --two stage method

10. Chiappori and Salanie’s (2000) approach Predict: is the correlation coefficient of and

11. A robust test let when,and when Predict: should be significantly positive

12. Approach similar to Dionne, Gourieroux & Vanasse (2001) (a) estimate the occurrence of claim in first stage (b) estimate the choice of coverage in first stage

13. Predict: is significantly positive

14. Empirical Results The asymmetric information do exist in automobile insurance market of Taiwan The asymmetric information problems in insurance written by DOA are more sever than those through non-DOA channels –From Chiappori and Salanie’s (2000) approach –From robust test –From Approach similar to Dionne, Gourieroux & Vanasse (2001)

15. Thank you ! All your comments are welcome !