Corporate Risks And Corporate Demand For Insurance

Corporate demand for insurance is the kind of commercial insurance demand, likeproperty insurance. According to the corporate insurance demand theory, corporateinsurance can effectively help controlling the bankruptcy risk, and offer more usefulencouraging system to ease the agency problem, which lead to the improvement ofcompanies' organization and the promotion of companies' value. Every company cantransfer its potential risk to the insurance company through a policy. Insurance hasbeen regarded as a financial tool for business risk-averse and adding the company'svalue in modem companies along with high bankruptcy cost and serious agencyproblem.This article discusses the insurance's impact in corporations' organization, controland risk-averse from both theory side and experience side, which emphasizeparticularly on the evidence inflection of Chinese companies' problem on the demandof corporation insurance and finding the correlation between the corporation risk andthe demand of corporation insurance. In the theory side, we promote the rudimentaltheory by data examples, discuss the cause of corporations' problem, analyze the wayhow the insurance can help controlling the corporations' risk and easing the conflicts,explain the insurance's function in promote the corporations' value that how insurancecan reduce the bankruptcy cost and ease the conflict of interest caused by agencyproblem. Check up whether the corporation insurance demand theory can be used inChina. Find out the correlativity relation between corporation risk and corporationinsurance demand in our country. In the experience side, we take the publicly listedcompanies as researching object, analyze the corporation insurance's effect ion incontrolling corporation's risk, measure the evidence influence of the bankruptcy costand agency problem on the demand of corporation insurance.Here we analyze the cause why corporation of rational faculty action do notpurchase insurance under the ideal station first. By way of establishing the model, weprove that there is no demand for corporate insurance in ideal. Having added twoimportant factors- business cost and agency problem, we prove that the exiting ofbusiness cost and agency problem is one of the factors leading corporation to thedemand of corporate insurance which is used in risk controlling. Then, twohypotheses are put forwarded: corporate insurance demand has a positive correlationwith business cost; corporate insurance demand has a positive correlation with agencyproblem. With the data handling software, we do analysis research on the associateddata of all the company that has listed their property insurance cost listed in Shenshiand Hushi 2004, that is 169 companies, and we come to two regression models. Theresults make it clear that demand of corporate insurance has a correlation withcompanies' risk management in China, and it is the existing of business cost and agency problem leading to the demand of corporate insurance. Finally, we discuss theactuality of corporate risk-averse and the problem in the development of corporateinsurance; promote five suggestions to the development of corporate insurance market.In conclusion, the developing of corporate insurance can not only help the growth ofthe insurance and the companies' risk-averse, but also the guarantee of the steadydevelopment of our economy.