Document Type : Original Research Paper

Authors

• Z. Borumand
• Z. Asen

Department of Business Management, Faculty of Management, Islamic Azad University of Tehran(Central Tehran Branch), Tehran, Iran

Abstract

Adverse Selection and moral hazard are the results of theinformation asymmetry within the insurance market. Insurers mostly pay attention to the existence or non-existence of adverse selection. It is assumed that there are two risk levels (low and high risk). In the insurance market, based on the theory of adverse selection, individuals with high level risk demand higher insurance services compared to those with low level risk. The purpose behind the current study is examining the phenomenon of information asymmetry in the fire insurance market and its effects on the financial performance of an insurance company. The study group in the research contains claims during 2012-2013 in Tehran. Logistic regression of Chi-Square, Hasmer and Lemshow and Vale tests have been utilized to examine the significance of the relationships and goodness of fit. Then, the correlation between adverse selection and moral hazard within insurance market was tested. The results indicated that asymmetric information within the fire insurance market imposes enormous damages on the companies.

Keywords

• Asymmetric information
• Moral hazar
• Adverse selection
• Logistic regression model
• Financial performance