Information asymmetry is a term that sounds like it belongs to elites. It doesn't. It affects everyone.
Information asymmetry is a crucial part of understanding many kinds of insurance coverages and insurance relationships, meaning relationships between insurance carriers and their policyholders.
Information asymmetry is really simple: It means that one person has more information than others have. Usually, it also implies that the one person with the greater amount of information has an advantage over the many other people who do not have as much information.
This concept has been embedded in insurance law for a long time now. Not much work has been done on it recently concerning insurance, but I first came across this concept in a ground-breaking study of how uninsured/underinsured motorist (UM/UIM) claims were resolved based on 2,223 "closed claims" in 38 States in 1992. That study involved 61 insurance carriers which at the time held 70% of the UM/UIM premium business in the United States.
The evidence is uncontradicted: The information asymmetry or "unbalanced information" in the UM/UIM relationship, in which the 61 UM/UIM carriers involved all pretty much knew a whole lot more about how they handled UM/UIM claims than policyholders did, resulted in favorable outcomes which tended to favor the carriers settling "bad faith" claims in those cases. The carrier-favorable outcomes especially stand out when they are contrasted with claims which might go to judgment in simple and basic terms. I have written about this before. E.g., 2 Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith § 9:1 (Third Edition and 2017 Supplement in process, Thomson Reuters West); Dennis J. Wall, § 2:11, in Catastrophe Claims: Insurance Coverage for Natural and Man-Made Disasters (Thomson Reuters West and 2017 Supplement in process).
Now information asymmetry has been recognized in health insurance. In that business, unbalanced information has been called out by economists who point out that, in economic theory, competition will theoretically lead to "lower prices and higher quality" only when buyers are "able to compare the quality of offerings of different sellers." Instead of asking how many angels can dance on the head of a health insurance plan, in other words, the reality that frames every question about health insurance coverage is that people do not ordinarily know the coverages available for treatments they might need now or in the future.
Add to this reality mix that health insurance policies, like many kinds of insurance policies, are "notoriously complex and technical," and what you have is reality displacing theory:
Consumers simply cannot make informed quality comparisons in this industry.
Robert H. Frank, "Economic View / What Comes Next for Obamacare? The Case for Medicare for All" (New York Times Online, posted March 24, 2017) (subscription may be required at www.nytimes.com).
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