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An Examination of Adverse Selection in the Public Provision of Insurance

Author

Listed:
  • Randy E Dumm

    (Florida State University, Tallahassee, FL, U.S.A.)

  • David L Eckles

    (University of Georgia, 206 Brooks Hall, Athens, GA 30602, U.S.A.)

  • Martin Halek

    (University of Wisconsin, Madison, WI, U.S.A.)

Abstract

Using a unique data set from Florida's residual property insurer, we test for adverse selection in the public provision of homeowners’ insurance in Florida. We find a significant relationship between the losses and deductible choices of insureds in Florida's residual homeowners’ insurance market. This relationship provides strong evidence of the existence of an adverse selection problem in Florida's residual property insurance market. While this relationship is important to Florida regulators (and taxpayers) specifically, a finding of an adverse selection problem in residual markets in general has implications more broadly for government providers of insurance as an adverse selection problem in these settings will impact the public policy debates and decisions involving these markets.

Suggested Citation

  • Randy E Dumm & David L Eckles & Martin Halek, 2013. "An Examination of Adverse Selection in the Public Provision of Insurance," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 38(2), pages 127-147, September.
    • Handle: RePEc:pal:genrir:v:38:y:2013:i:2:p:127-147
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    Cited by:

    1. Randy Dumm & David L. Eckles, 2022. "Residential property insurance and markets: Florida's QUASR data," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 25(1), pages 83-91, April.
    2. Karl Ove Aarbu, 2017. "Asymmetric Information in the Home Insurance Market," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 84(1), pages 35-72, March.
    3. Jean-François Outreville, 2014. "The Meaning of Risk? Insights from The Geneva Risk and Insurance Review," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 39(4), pages 768-781, October.
    4. Randy E. Dumm & Charles Nyce & G. Stacy Sirmans & Greg T. Smersh, 2022. "Pricing Moral Hazard in Residential Properties: The Impact of Sinkhole Claims on House Prices," The Journal of Real Estate Finance and Economics, Springer, vol. 64(1), pages 30-70, January.

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