Cost-effectiveness, fairness and adverse selection in mutual aid

Ze Chen, Runhuan Feng, Li Wei, Jiaqi Zhao

Research output: Contribution to journalArticlepeer-review

Abstract

Online mutual aid (MA) is a novel form of ex-post risk sharing empowered by InsurTech to provide critical illness coverage without involving an insurer. In this paper, we first provide a rigorous examination of the underpinning theory and analyze MA model's cost-effectiveness. In addition, we theoretically investigate the condition for MA's actuarial fairness among all participants. Our numerical illustration also shows that current MA plans lack the consideration of actuarial fairness as they differentiate members only by gender and age group of large bandwidths. Last, our empirical analysis confirms the existence of adverse selection due to the lack of actuarial fairness.

Original languageEnglish (US)
JournalEuropean Financial Management
DOIs
StateAccepted/In press - 2023

Keywords

  • actuarial fairness
  • adverse selection
  • InsurTech
  • mutual aid
  • risk sharing

ASJC Scopus subject areas

  • Accounting
  • Economics, Econometrics and Finance(all)

Fingerprint

Dive into the research topics of 'Cost-effectiveness, fairness and adverse selection in mutual aid'. Together they form a unique fingerprint.

Cite this