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Description

When we talk of asymmetrical information in the insurance industry particularly health then by that we mean the information is not properly distributed and shared between the insurer and the insured. An example – a person “A” is suffering from brain tumour and person “B” who is the insurer does not have any idea about A’s illness. If “A” goes for insurance policies then it is presumed he is safe and secured as he will enjoy all the benefits derived from insurance policy purchased and also the risk will be covered. But, on the other hand, “B” who is the insurer will be at loss. According to the economist, adverse selection, asymmetrical information, moral hazards are some of the characteristics of health service delivery or commonly seen in the insurance contracts. So, in this example, the buyer of insurance has the knowledge of risk to his health but the seller of the insurance has no clue about it. This will result in market failure. Because the insurer will sell the insurance policies at the average cost charged to others. And since he does not know about the risk of health of each individual he will be at loss to those who have high risk to others health. This equilibrium can be achieved in the insurance market for that the insurer should know the potential risk of the buyer and charge the fee as per the risk involved. Information is now said to be in symmetry where the seller charges the buyer, his expected cost of risk. The insurer needs to get in depth of the personal life of the buyer to analyse the risk involved.