Information asymmetry and insurance brokers
Type
conference paper
Date Issued
2024-10-07
Author(s)
Abstract
We study the role of brokers in addressing information asymmetry in selection
markets. Using detailed risk and insurance data from a large broker in the cyber
insurance market, we present empirical evidence supporting the presence of selection
and moral hazard based on independent cybersecurity ratings and actual cyber incident
records of firms with and without insurance over time. We also find that clients
who have worked with the broker longer, thus allowing the broker to collect more
information, exhibit significantly less ex-ante moral hazard compared to new clients,
though there is less evidence of reduced selection bias. In a model, we show that the
empirical pattern can be rationalized when the broker is premium-maximizing and
insurers have partial information.
markets. Using detailed risk and insurance data from a large broker in the cyber
insurance market, we present empirical evidence supporting the presence of selection
and moral hazard based on independent cybersecurity ratings and actual cyber incident
records of firms with and without insurance over time. We also find that clients
who have worked with the broker longer, thus allowing the broker to collect more
information, exhibit significantly less ex-ante moral hazard compared to new clients,
though there is less evidence of reduced selection bias. In a model, we show that the
empirical pattern can be rationalized when the broker is premium-maximizing and
insurers have partial information.
Event Title
German Finance Association Annual Conference
Event Location
Aachen, Germany
Event Date
9/26-9/28/2024