The Economic Analysis Of Formation And Prevention Of Insurance Agents' Moral Hazard

As a link between the insurers and the insured, the insurance agents are the key to the transmission of information. But, because of the asymmetric information and the imperfect incentive system, agents often use information superiority to cheat both the insurers and the insured which result in multiple moral hazard and great harm to the insured, insurers and even the entire insurance market.In this paper, system economics and the game theory are to be used to explain the formation mechanism of moral hazard. Through the analysis, we find that, although the insurance agents lead to moral hazard by many factors, such as the behind regulatory system, the impetuous atmosphere of the market, but at the same time, we can find same measures to suppress the formation of moral hazard, such as enhancing the reputation costs, increasing penalties and so on. But the insurance companies, who have management responsibilities to the agents, should improve and re - design the incentive pay system which is the best choice for them.In this paper, an effective agent incentive mechanism against the risk of moral hazard is worked out after further analysis of the multi-task agency model. The model showed that, if the insurance companies want the agents to improve service quality which is not observed, the companies should weaken the incentive of quantity indicators. But it's impossible for the insurance companies to weaken the quantity indicators because they want to expand scale and increase market share. So we should use an appropriate assessment method to make the quality indicators observable and take them into incentives contracts. However, the agents' quality-information superiority is unchangeable. Thus a sound incentive system should induce agents to be more honest and encourage them to make more efforts to improve the quality of work for their own maximum interests. I used the Analytical Hierarchy Process as a specific method to quantify quality indicators. The director of human resources, training director, director of agents-team and departments' directors evaluate agents' professional skills, interpersonal skills, and professional ethics, and then get the corresponding weight factor of assessment-indicators.In order to improve the accuracy of quantifying the quality indicators, insurance companies and the whole social should cooperate with the incentives. Companies' examinations, associations' education and social supervision should work together to restrain agents' acts from moral hazard. Insurance companies need to establish and improve information systems, set a reasonable level of supervision and enhance trainings to the overall quality of agents; Insurance Associations of China need to standardize agent market, improve the quality of the agent, be strict to the market's admittance and persist on continuing education; The public and regulatory bodies need to monitor the law strictly and strengthen supervision by public opinion, so that law-breakers are prosecuted, and law-executors are safeguarded.