The Analysis of the Impact of Different Insurance Sectors on Moral Hazard in Iran's Insurance Industry

Articles in Press

Document Type : Research Paper

Authors

1 Department of Economic, Payame Noor University, Tehran, Iran.

2 Department of Economics, Miyaneh Branch, Islamic Azad University, Miyaneh, Iran

3 Department of Economics, Miyaneh Branch, Islamic Azad University, Miyaneh, Iran.

4 Department of Management, Miyaneh Branch, Islamic Azad University, Miyaneh, Iran.

10.22059/jte.2025.389052.1008973

Abstract

Moral hazard or opportunistic behavior of policyholders is one of the fundamental challenges of the insurance industry. Moral hazard occurs when the insurance company's claim rate increases due to consumer behavior, in other words, the insurance company incurs more costs than expected. Moral hazard increases costs, reduces efficiency, and disrupts market equilibrium. The present study aims to identify and analyze the impact of specific characteristics of insurance fields (such as contract design and risk assessment complexity) on moral hazard in the Iranian insurance industry during the years 1376 to 1401. The research is of an applied and descriptive-analytical type. Decision tree and artificial neural network models were used to estimate moral hazard, and the receiver operating characteristic curve was used to validate the results. In this study, it is assumed that specific characteristics of insurance fields can exacerbate behaviors leading to moral hazard. To eliminate the scale effect of the variables and to compare the regression coefficients reliably, the claims data of the fourteen insurance lines were standardized using Z-scores. The findings showed that the fire and life insurance lines are most likely to cause moral hazard due to their specific characteristics, such as the complexity of risk assessment and financial incentives. Validation of the results indicates the accuracy of the estimates and the high accuracy of the models used. Therefore, it is more necessary and recommended to improve professional ethics and risk management in these lines. Designing smart contracts, using digital claims assessment systems, and reviewing the tariff structure in a discipline-oriented manner should be on the agenda of insurance institutions and policymakers in these lines.

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Journal of Economic Research (Tahghighat- E- Eghtesadi)

Articles in Press, Accepted Manuscript
Available Online from 15 September 2025

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History

  • Receive Date: 19 January 2025
  • Revise Date: 12 September 2025
  • Accept Date: 15 September 2025

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