BEHAVIORAL ASPECTS OF ENSURING INSURANCE MARKET EFFICIENCY AND MARKET EQUILIBRIUM: THE "X-EFFICIENCY OF INSURANCE" MODEL
Abstract
This article explores the behavioral aspects of achieving efficiency in the insurance market and establishing market equilibrium through the "X-efficiency of insurance" model. It investigates how differing perceptions of market efficiency among participants impact key performance indicators (KPIs) and examines the inherent conflict between buyers and sellers. Due to previous publications, we systematized five KPIs of the insurance market, which are common to various participants of the insurance market: insurance premiums, profit, share of administrative costs, level of insurance compensation, price (tariff). For example, insurance buyers typically aim to minimize prices, whereas sellers focus on maximizing prices and selling their services. This fundamental conflict affects the efficiency criteria of the insurance market, particularly in relation to insurance pricing. The study aims to develop graphical models and diagrams to visualize market efficiency. It constructs a graphical model that represents market effectiveness by price, plotting the aggregate market demand and supply curves for insurance services in terms of "insurance effectiveness - service price." This model, referred to as the "X-efficiency of insurance," aligns qualitatively with traditional supply and demand models and illustrates equilibrium in the insurance market. In the specified case, we can talk about the equilibrium efficiency of the insurance market from the standpoint of the price of the service (as a KPI). Similarly, it is possible to determine the efficiency of the insurance market in relation to another KPI. As another KPI and example, we chose the level of insurance payments and the corresponding graph "X-efficiency of insurance" on the diagram "efficiency of insurance - level of insurance payments". The analysis demonstrates that complex behaviors and strategies of market participants can lead to persistent conflicts of interest. Thus, finding a compromise to ensure market efficiency remains a critical and ongoing challenge.
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