Risk Evaluation Factor of Health Promotion Medical Insurance: An Analysis Focusing on Cost of Telematics and Policyholder’s Coverage Selection

This study aims to demonstrate the effect of the cost of telematics and loss ratio improvement on the coverage demand for health promotion medical insurance. Real-time monitoring via telematics is expected to alleviate moral hazard of insured persons through the “analogical experience rating system,” resulting in a decreased claim cost and an improved loss ratio. In reality, however, the real-time monitoring on a continuous basis imposes a cost burden on insurers and thus, certain expense loadings apply to insurance premiums. The analysis based on the modified separating market equilibrium model reveals that people tend to opt for partial insurance coverage, and high-risk individuals even stay uninsured unless the expense loadings are not excessive. This result implies that the demand for health promotion medical insurance can decrease, and may conduce a market shrinkage, unless the improvement of loss ratio sufficiently surpasses the cost of telematics utilization.