The risk screening effect of digital insurance distribution
Finbarr Murphy
Department of Accounting and Finance, Kemmy Business School, University of Limerick, Limerick, Ireland
Search for more papers by this authorCorresponding Author
Wei Xu
Department of Insurance, School of Finance, Shanghai University of Finance and Economics, Shanghai, China
Correspondence Wei Xu, Department of Insurance, School of Finance, Shanghai University of Finance and Economics, Shanghai, China.
Email: [email protected]
Search for more papers by this authorXian Xu
Department of Risk Management and Insurance, School of Economics, Fudan University, Shanghai, China
Search for more papers by this authorFinbarr Murphy
Department of Accounting and Finance, Kemmy Business School, University of Limerick, Limerick, Ireland
Search for more papers by this authorCorresponding Author
Wei Xu
Department of Insurance, School of Finance, Shanghai University of Finance and Economics, Shanghai, China
Correspondence Wei Xu, Department of Insurance, School of Finance, Shanghai University of Finance and Economics, Shanghai, China.
Email: [email protected]
Search for more papers by this authorXian Xu
Department of Risk Management and Insurance, School of Economics, Fudan University, Shanghai, China
Search for more papers by this authorAbstract
Extant research holds that digital sales channels advance competition and service or goods availability but rarely details the attendant information asymmetry. Leveraging a large unique dataset, this study examines a specific case in which consumers have a choice between offline and digital channels for insurance purchases. We find that digital channels screen in consumers with lower unobserved risk. For term life, endowment and disease insurance products, the average risks of the policies purchased through digital channels were significantly lower than those purchased offline after controlling for all observed risk characteristics. This risk screening effect mainly comes from the inclusion of new low-risk enrollees. As a consequence, digital channels exhibit lower information asymmetry and greater profitability compared to offline channels.
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