The Structure and Regulation of Insurance Markets
Insurance markets are different and special in many ways compared to other financial markets. From their informational structure, the purchaser or prospective insured or applicant is more likely to know more about their own risk characteristics than the insurer. Unlike other markets, information advantage is held by suppliers, who have more idea regarding the product quality than the buyer does. This chapter focuses on insurance products, and in this type of market there is usually a two-way information asymmetry. The insurer knows more about the insurance products, while the client/applicant knows more about the risk of the thing insured than the insurer. The chapter also discusses different types of insurance models. Regulation of insurance markets is also provided, so as to solve the information problem affecting the insurance services. The chapter concludes with the market structure of insurance markets and the prudential regulation required by the governments of countries with such a type of market.
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