Adverse Selection in the Korean Storm and Flood Insurance Market

Abstract

We use a unique survey data set of storm and flood insurance in Korea to test for adverse selection. We find systematically positive relationships between the decision to buy the insurance and the insureds’ past history with, and potential for, losses from natural disasters. The empirical results suggest that consumers with higher loss rates will be more likely to purchase the insurance. This highlights the importance of considering the detailed features of insurance contracts, such as an improvement in the current insurance premium assistance program as the government amends its current policies regarding storm and flood insurance and disaster relief program.

Keywords

• 풍수해보험(Storm and Flood Insurance)
• 역선택(Adverse Selection)
• 보험료 지원(Insurance Premium Assistance)