Corporate opacity and net premiums written flows: Evidence from US property‐liability insurers

Abstract This paper investigates the relationship between corporate opacity and policyholders' purchasing behavior in US property‐liability insurers. We find that policyholders are more willing to purchase policies from less opaque insurers. In addition, the financial tail risk exacerbates the negative relationship between opacity and insurance purchasing behavior. The evidence shows that opacity significantly affects purchasing behavior in commercial lines but not in personal lines, suggesting that commercial buyers/risk managers and their brokers help prospective policyholders evaluate insurers' financial strength, stability, and claims‐paying efficiency, thereby reducing information asymmetry. The evidence also shows that opacity does not significantly influence the purchasing behavior in personal automobile and homeowners insurance lines (the most tightly regulated guaranty fund lines). In other words, prospective policyholders of guaranty fund lines may not be incentivized to assess the quality of insurers' financial information.