Economic Analysis On Market Failure Of Catastrophe Insurance In China

There are many natural disasters such as earthquakes and floods in our country. The catastrophic risks have a broad geographical distribution. All kinds of the catastrophic risks have high frequency and huge loss. Especially since 2008, the south snowstorm and the Sichuan earthquake had successively taken place in our country, greatly threaten the economic development and social stability. The people greatly need the catastrophic insurance to play an important role in undertaking the catastrophic risk. However, because of the special attributes of catastrophe insurance goods, there is market failure in catastrophe insurance market so as to hindering the development of catastrophe insurance market. For this reason, analyzing some problems which lead to market failure of catastrophe insurance.Catastrophe insurance is a quasi-public goods has the benefits of spill-over between public goods and private goods, catastrophe insurance has positive externality characteristics because of the existence of spillover benefits. There is asymmetric information between the main body of the insurance market when catastrophe insurance in the course of business. The two main forms of information asymmetry in insurance market are moral hazard and adverse selection. In the circumstances of the existence of asymmetric information, the insured balance of moral hazard can only be a partial solution of the insurance contract, in other words, the contract market equilibrium that is required the insured must also bear part of risk. As long as they are fully competitive insurance market, the existence of adverse selection of the insured, there is separating equilibrium but pooling equilibrium. The high-risk insured select full insurance and the low-risk insured select partial insurance in the separating equilibrium. The premium rates of total insurance is the probability of the high-risk insured take place an accident, The premium rates of part insurance is the probability of the low-risk insured take place an accident.According to the principle of public goods, China should establish a policy of catastrophe insurance model. According to the principle of positive externality of catastrophe insurance, the government should subsidize catastrophe insurance of residents, the establishment of the Government's reasonable share of catastrophic risk. In view of moral hazard of the insured, designing pertinence insurance clause is a primary and efficient strategy to avoid moral hazard. In view of adverse selection of the insured, the first is to strengthen insurance underwriting control, the second is to establish mechanism for scientific claims.