It ’ s all about speed and costs : The impact of digital technology on the insurance market structure
نویسندگان
چکیده
Digital technology is costly, but it allows insurers to more quickly learn about the risk type of their policyholders. We study the implications of this speed-versus-cost tradeoff for equilibrium pricing and coverage decisions in an insurance market featuring adverse selection. In particular, we develop a theoretical model of dynamic competitive equilibrium featuring individuals who differ in their privately known risk types, and a large number of two types of insurers: conventional insurers and “tech” insurers who employ digital technologies. We consider three distinct dynamic equilibrium concepts: a finite horizon structure with foresight, an infinite horizon “overlapping generations” structure, and an infinite horizon myopic structure. Equilibrium in each setting features a sorting of low-risk types into tech firms and high-risk types into conventional firms. Depending on the setting, however, the equilibrium tech-firm market share may negatively, positively, or mixed correlate with the learning speed of conventional insurers.
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