Market Failure

  • Part 1 - 1979 02 - SOA - Permutations and Computation, EJM, Society of Actuaries - 3p
  • The inability to evaluate policy performance in the normal course of owning the policy seems to be fundamental to any theory of informational market failure in this market.  (p293)

1985 11 - FTC - Life Insurance Products And Consumer Information - Michael P. Lynch and Robert J. Mackay - Staff Report Bureau of Economics - Federal Trade Commission - 317p

re: Moss Report - (1978 12 - GOV (House Report) - Life Insurance Marketing and Cost Disclosure Report Together with Dissenting Views, Congressman Moss (D-CA)  ---  [BonkNote] ---   [PDF-109p])

  • The findings and conclusions, and this is the part that created the explosion, were that there is a shortfall of information, particularly with respect to ordinary life and that consumer experience does suggest that the consumer is not able to adequately determine the suitability of the product, the quality of the product, or the cost of the product.
  • As a consequence, consumers are sustaining losses, and this would be a definite indication of a market failure.

--  Jack E. Bobo, Executive Vice President of the National Association of Life Underwriters (NALU)

1979 - SOA - Cost Disclosure (Moss Report), Society of Actuaries - 18p

  • 59 The principal insurance market failures that may warrant regulation of firm conduct are imperfect information and principal-agent conflicts.
    • Some consumers may be hampered in their knowledge and understanding of insurance transactions and ability to fully protect themselves from abusive practices.
    • Abusive practices are broadly defined as actions that take “unfair” advantage of a consumer with material harm to the consumer.
  • If consumers were fully knowledgeable about their insurance needs and options, presumably they could avoid transactions that were not in their best interest.
    • For example, consumers with full knowledge could not be misled with respect to the expected returns on universal life insurance policies.
  • The reality is that it is difficult for many consumers to assess policy provisions and their financial implications, particularly for complex insurance products (Joskow, 1973; Schlesinger, 1998).
    • Consequently, an insurer or an agent could lead some consumers into buying insurance policies under terms that are detrimental to the consumers.

2003 0701 - NCOIL - The Path to Reform – The Evolution of Market Conduct Surveillance Regulation, Prepared for the Insurance Legislators Foundation by PricewaterhouseCoopers LLP and Georgia State University - 117p