Document Type : Original Research Paper
Authors
1 Department of Economics, Faculty of Economics, University of Tehran, Iran
2 Department of Economics, Eco Insurance Institute of Higher Education, Allameh Tabatabai University, Tehran, Iran
Abstract
This article proposes a theoretical framework to find the selection theory governing the insurance market. This issue is one of the most important issues related to the determination of the appropriate insurance premium and the further development of the insurance industry in the economy of countries. For this purpose, first, through utility maximization, the demand function of life insurance and savings for a typical individual was extracted; Then, the potential customers of the insurance company were divided into low-risk and high-risk groups, and the demand functions for these groups were obtained using numerical simulation. The modeling done by taking into account the issue of people entering and exiting the market by means of the Astana insurance premium has led to the creation of broken life insurance and savings demand functions. Finally, by comparing the demand functions of different customer groups, the type of choice theory governing the life insurance and savings market has been determined. The results show that the theory of choice governing the life insurance and savings market, according to the amount of the premium, is of the type of strong adverse selection or weak adverse selection. Considering that reducing the premium reduces the difference between the demand of two groups, it can be introduced as an expression to reduce the power of adverse selection in the life insurance and savings market.
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