Data Linkage betw. Markets: Does the Emergence of an Informed Insurer Cause Consumer Harm?

(with Claudia Herresthal and Tatiana Mayskaya)

A company uses consumer data from product sales to offer personalized insurance. When consumers are predominantly of high risk, data linkage between product and insurance markets benefits both high- and low-risk consumers by generating efficiency gains in the insurance market, which are partially passed on to consumers via the product market. When consumers are predominantly of low risk, data linkage can harm both types. High-risk consumers lose rents in the insurance market, while low-risk consumers face negative externalities from sophisticated high-risk consumers via the product market. Further harm to both types arises in a competitive insurance market due to cream-skimming.