João bought his first car this year and found it necessary to hire one. He received different proposals and analyzed which one would be the best, considering his profile. A question that many people ask is: why, when receiving insurance proposals, are there several options and charges?
The shows that, under certain assumptions, the de produces an efficient result. In the insurance market, however, these assumptions do not fully apply, which
characterizes a market failure.
In this market, buyers and sellers seek to meet their interests and intend to establish a contractual relationship. The problem is that one party has an informational advantage over the other, that is, there is asymmetric information.
The insurance seller cannot guarantee that the buyer will be a careful driver, which would be desirable, nor how he will drive after signing the contract. In Economist, these situations are called, respectively, adverse selection and moral hazard. The solution to this type of
The situation is what we observe when taking out car insurance: there is, in general, more than one option. Contract prices may vary according to the driver’s age and are
designed so that more careful drivers choose different contracts than those chosen by less careful drivers.
For example, contracts for men are cheaper than those for men because, on average, they are involved in fewer accidents.
What would be the relationship between the car insurance market and the (FGC)? This fund was created in 1995 to protect individuals against bank failures and avoid crises in the .
Account holders and investors are protected by a limit of up to R$250,000 per institution and per
CPF. Therefore, if I invest my resources up to this limit in any institution, I do not need to worry about evaluating or monitoring that institution, as I will receive the amount guaranteed by the FGC if a negative event occurs.
The case of , which has been going on for some time, revealed that the institution adopted financial practices that led to the intervention of and, subsequently, the decree of
extrajudicial liquidation of the conglomerate. The episode sparked discussions about the misuse of guarantees offered by the Credit Guarantee Fund (FGC). On the other hand, many
Investors began to invest resources, obtaining profitability well above the market average, without adequately evaluating the institution’s profile, without monitoring it and relying exclusively on the guarantee.
This may signal both an adverse selection problem and a moral hazard problem on the part of the financial institution. The question that arises is how to redesign the deposit and investment protection structure, in order to avoid what happened in the case of Banco Master.
One of the possibilities is the inclusion of a type of deductible in case of a negative event. For example, account holders would not be reimbursed in full by the fund, but rather a specific smaller amount. Thus, the contract and incentives change, and investors now have incentives to better evaluate the banks in which they wish to invest their resources, as well as to monitor them.
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