Document Type : Original Research Paper

Authors

• A. Shahabadi ¹
• B. Sahabi ²
• Y. Salmani ²
• A. Valinia ³

¹ Department of Economics, Faculty of Social and Economic Sciences, Bou Alisina University, Hamadan, Iran

² Department of Economics, Faculty of Management and Economics, Tarbiat Modares University, Tehran, Iran

³ Department of Economic Sciences, Bank Keshavarzi, Tehran, Iran

Abstract

The presence of bias in the insurance market leads to an increase in insurance premiums and hence the exit of people with a high degree of risk aversion from the market, as a result the probability of inefficiency in the insurance market increases. By knowing the elasticities of insurance demand and measuring the welfare effects of increasing premiums, insurers can prevent this occurrence by adopting appropriate policies. The present study has examined this issue regarding personal insurances using the almost ideal demand system method during the period of 2012-2015. Marshallian and income elasticities indicate gross weak relationships between personal insurances, as well as the luxury of life insurance and the necessity of supplementary medical and accident insurance. The elasticity of Hicks and Allen also indicated the existence of a weak net substitution relationship between personal insurances and a stronger relationship between life and accident insurances. Based on the criteria of equivalent changes and compensatory changes, with the aim of reducing inefficiency, the insurer can, instead of increasing the premium, make one-time receipts from people with low risk aversion or, in case of an increase, compensatory payments to people with high risk aversion. The figures received in the first approach are far less than the figures paid in the second approach.

Keywords

• Individual Insurances
• Almost Ideal Demand System
• Seemingly Unrelated Regression
• Welfare Changes
• Risk and Uncertainly