Study Results from University of St. Gallen Provide New Insights into Risk Management (Technology Heterogeneity and Market Structure): Risk Management

2021 DEC 16 (NewsRx) -- By a News Reporter-Staff News Editor at Insurance Daily News -- Current study results on Risk Management have been published. According to news originating from St. Gallen, Switzerland, by NewsRx correspondents, research stated, “New technologies may allow principals or firms to learn more quickly about the characteristics of their agents or clients-at some cost of employing that technology. We study the implications of this speed-versus-cost tradeoff for equilibrium pricing and purchasing decisions in insurance markets featuring adverse selection.”

Financial support for this research came from National Natural Science Foundation of China (NSFC).

Our news journalists obtained a quote from the research from the University of St. Gallen, “In particular, we study dynamic competitive equilibrium in a theoretical model featuring individuals who differ in their privately known risk types and featuring two types of insurers: conventional insurers who employ a legacy learning technology and tech insurers who employ a new technology. Equilibrium in our model features sorting of low-risk types into tech firms and high-risk types into conventional firms. We show, intuitively, that lowering the technology cost raises this cutoff and thus increases the equilibrium market share of tech firms. Perhaps counter-intuitively, however, we show that adverse selection effects within the conventional market can cause an attempt by conventional insurers to catch up with tech firms-by increasing the speed at which they learn about the risk types of their insureds-to backfire and lead to an increase in the market share of tech firms.”

According to the news editors, the research concluded: “Our results are readily adapted to bank lending and labor market settings.”

This research has been peer-reviewed.

For more information on this research see: Technology Heterogeneity and Market Structure. Journal of Risk & Insurance, 2021. Journal of Risk & Insurance can be contacted at: Wiley, 111 River St, Hoboken 07030-5774, NJ, USA. (Wiley-Blackwell - http://www.wiley.com/; Journal of Risk & Insurance - http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1539-6975)

The news correspondents report that additional information may be obtained from Martin Eling, University of St. Gallen, Institute of Insurance Economics, School of Finance, Girtannerstr 6, Ch-9010 St Gallen, Switzerland. Additional authors for this research include Ruo Jia, Jieyu Lin and Casey Rothschild.

The direct object identifier (DOI) for that additional information is: https://doi.org/10.1111/jori.12369. This DOI is a link to an online electronic document that is either free or for purchase, and can be your direct source for a journal article and its citation.

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