Wednesday, April 23, 2008

Seeds Of Its Own Destruction

In the simple adverse selection with asymmetric information model of insurance markets, the possibility exists that the market simply implodes. And if there is a market, low risk (low cost) people are underinsured and high risk people pay a lot. Essentially what we've been saying over the past few years is low end insurance getting shittier and shitter and high end insurance getting costlier and costlier. We may be hitting the point where low end insurance disappears altogether.