Volume 91, Issue 4 pp. 841-866
ORIGINAL ARTICLE

The risk screening effect of digital insurance distribution

Finbarr Murphy

Finbarr Murphy

Department of Accounting and Finance, Kemmy Business School, University of Limerick, Limerick, Ireland

Search for more papers by this author
Wei Xu

Corresponding 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 author
Xian Xu

Xian Xu

Department of Risk Management and Insurance, School of Economics, Fudan University, Shanghai, China

Search for more papers by this author
First published: 04 November 2024
Citations: 1

Abstract

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.

The full text of this article hosted at iucr.org is unavailable due to technical difficulties.