Page 9 - Ebook health insurance IC27

Sashi Publications

understand the concept we have to dwelt in deep the features of an imperfect
market.

Imperfect market refers to a market where information is not quickly disclosed to all
participants in it and where the matching of buyers and sellers isn't immediate. Generally
speaking, it is any market that does not adhere rigidly to perfect information flow and
provide instantly available buyers and sellers.

If we analyse the definition it means
 Information is not quickly disclosed to all participants
 Buyer and seller do not fully know each other
 Matching of buyers and sellers are not immediate
 There is an element of risk in doing business

If we take into account other forms of insurance they mostly belong to perfect market.
For example fire insurance, when the prospect approaches the insurance company for
insurance of its property the insurance company knows that he has to insure that property
and estimates thevalue of thepropertyand accordingly quotes thepremium. And generally
people do not set their own properties on fire to get claim.

But in case of health insurancethe scenario is completely different. It is aform of imperfect
market. The information available to the insurer about the insured is not perfectly
transparent or complete. So in order to save himself the insurer imposes lots of terms
and condition. In turn due to lot of conditions policyholder is not able to understand the
insurer. So there is a condition of distrust between them.

In order to keep the product portfolio profitable the insurer always wants to have lower

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