Economic Studies On Regulation Of Insurance Market With Information Imperfection

Information imperfection on insurance market will lead to decline in market efficiency, therefore, it is imperative for government to intervene in the insurance market. All along, impact of insurance regulation on the insurance market efficiency is an important issue. With the rapid development of China's insurance industry, how to improve insurance regulation has become an urgent problem to be studied, but the current economic analysis of insurance regulation is very limited in China. Therefore, using social welfare as an index of market efficiency, the paper studies impacts of regulatory actions such as implementation of compulsory insurance and restrictions on risk classification by insurers on the insurance market with information asymmetry and with both information asymmetry and misinformation, which provides a theoretical basis for whether we should have some regulatory measures such as implementing mandatory insurance, and restricting on risk classification.There are some important innovations on research methods in this paper. This paper gets analytical expressions of consumer surplus, producer surplus and social welfare in insurance market by constructing the demand function and supply function of insurance market, which can quantitatively characterize and analyze the market efficiency in different market equilibrium, as well as the impact of changes in equilibrium on the market efficiency. So we can establish a rigorous, standardized platform to analyzing the impact of regulatory policies on consumer surplus and social welfare. At the same time, using computer simulation techniques in the course of study, the existing discoveries of traditional insurance economics can be greatly enriched and deepened.This paper reaches the following conclusions by theoretical model analysis and numerical solution: Firstly, implementing compulsory insurance can enhance market efficiency and consumer surplus of high-risk individuals in insurance market with information imperfection; while due to low-risk individuals may reduce consumer surplus and thus the government should select appropriate amount of compulsory insurance according to its desired policy objectives.Secondly, in the insurance market with information asymmetry, if we do not consider the classification costs and if the market initially is in the R-S separating equilibrium, then the risk classification can be implemented; but if the market initially is in the Wilson pooling equilibrium, it must deal cautiously with risk classification: Once the insurers cannot make a more precise classification, it is possible to decline in market efficiency.This paper also studies how to improve China's insurance regulatory practice, and puts forward relevant policy recommendations based on the theoretical results.