Risk Screening in Digital Insurance Distribution: Evidence and Explanations. [Job Market Paper] Wei Xu, 2023.

The embedding of digital technologies in the global economy has attracted increasing attention from economists. With a large and detailed dataset, this study examines the specific case where consumers have a choice between offline and digital channels in the context of insurance purchases. We find that digital channels screen in consumers with lower unobserved risk. For the term life, endowment, and disease insurance products, the average risk of the policies purchased through digital channels was significantly lower than those purchased offline. This risk screening effect mainly comes from the extensive margin. As a consequence, digital channels have weaker information asymmetry and higher profitability than offline channels. We highlight three mechanisms of the risk screening effect: the heterogeneous marginal influence of channel features on insurance demand, the channel features directly related to risk control and the link between the digital divide and risk. We also find that the risk screening effect mainly comes from the extensive margin, i.e., from new consumers. This paper contributes to three connected areas in the insurance context: the heterogeneous economic impacts of digital technology adoption, insurer-side risk selection and insurance marketing.

Ambiguity Preferences and Insurance-Precaution Relation. Wei Xu and Xian Xu, 2023.

Snow (2011) proposed the first model to separately prove the impact of ambiguity preferences on self-insurance and self-protection decisions at the optimal level. This paper extends that model to analyze the effect of ambiguity preferences on the insurance-precaution relation by incorporating both insurance demand and precaution efforts. We find that the effect of ambiguity aversion on the insurance-precaution relation depends on the efficiency of precaution efforts. At the optimal level, when the efficiency of precaution efforts is high, ambiguity aversion makes insurance and precaution substitute; while when the efficiency of prevention efforts is low, ambiguity aversion makes insurance and precaution complementary. This finding has significant implications for using sophisticated techniques such as machine learning to achieve accurate risk assessment to assist marketing.

Does the Mobile Application Sales Channel Strengthen Insurance Inclusivity? Finbarr Murphy, Wei Xu and Xian Xu, 2023.

Mobile insurance is gaining increasing popularity in the global insurance industry. Using a unique data of a best-selling mobile cancer insurance product from a Chinese life insurer, this paper studies the relationship between mobile technology and insur-ance inclusion. We find that the introduction of the mobile application channel gen-erates higher growth for low-insured-amount policies which are closely associated with low-income population. However, this inclusion of mobile insurance is unequal – it is stronger in high-income areas than in low-income areas. Examining mecha-nisms, we show that reduced transaction costs help explain the inclusion of mobile insurance, while regional digital divide leads to inclusion inequality. We also provide evidence on the inclusive impacts of mobile insurance on claim compensation and insurance consumer welfare.

How Does the Insurer's Mobile Application Sales Strategy Perform? An Chen, Yusha Chen, Finbarr Murphy, Wei Xu and Xian Xu, Journal of Risk and Insurance, 2023.

While the impact of an Internet-based sales strategy on sales performance has been well studied, there is little academic research that examines the impact of a mobile application (MA) sales strategy on the sales performance of insurers. Using a unique data set for term life insurance policies from a Chinese life insurer, we study the impact of implementing this strategy on insurance purchases. We find significant growth in the insurance purchase quantity and somewhat lower growth in premiums received from new policies (PRNP). This paper determines that this is due to improved channel accessibility and the cost reduction of the MA channel. Although sales of traditional distribution channels are cannibalized in the short term by the MA distribution strategy, this substitution effect does not persist in the long run. In addition, we find that this strategy reduces impulsive purchases.

Dynamic Communication and Perception of Cyber Risk: Evidence from Big Data in Media Wei Xu, Finbarr Murphy and Xian Xu, Computers in Human Behavior, 2021.

Cyber risk is consistently viewed as a threat to the proper function of commercial and societal activity. Regardless of whether this risk is real or perceived, understanding how societal communication and perception of it change over time has important implications for both regulatory authorities and insurers. This contribution analyzes Chinese media news over the years 2009–2018 to identify the dynamics of cyber risk sources and associated societal assessment. Taking the psychometric paradigm as its point of departure and applying combination of computational and statistical methods, we identify 34 sources of cyber risk. The actions of government turn out to have a significant impact on public attention to the different sources of cyber risk, an influence that has been neglected in past research. The dynamics of societal aversion against most cyber risk sources are found to present inverted-U shapes. Adaptation and learning effects are found to explain this dynamic. Another finding is that news sentiment has a strong correlation with cyber risk perception, an insight of importance for regulators and insurers.

I presented Risk Screening in Digital Insurance Distribution: Evidence and Explanations in following conferences/seminars:
Annual Conference of Irish Academy of Finance, Dublin, 2023; TH-Koln Workshop, Cologne, 2023; 2022 Spring Seminar Series, Limerick, 2022.

I presented How Does the Insurer's Mobile Application Sales Strategy Perform? in following conferences/seminars:
2023 Spring Seminar Series, Limerick, 2023; Emerging Risk Seminar, Dublin, 2021.

I presented Does the Mobile Application Sales Channel Strengthen Insurance Inclusivity? in following conferences/seminars:
2023 Spring Seminar Series, Limerick, 2023.

I presented Dynamic Communication and Perception of Cyber Risk: Evidence from Big Data in Media in following conferences/seminars:
CONVENTION A 2022, Shanghai, 2022; Conference on Endogenous Security Development in Cyberspace, Shanghai, 2021.