Estimation of supplementary medical insurance demand function in selected provinces

Academic Thesis for Master's Degree

Field: Business Management Major: Insurance Management

Abstract

One of the dangers facing humanity is a disease that imposes a lot of medical expenses on patients. The risk of illness can be compensated through medical insurance. The purpose of the present study is to estimate the demand function of complementary health insurance in the country. Therefore, using the panel data model, the data of 30 provinces of the country during the years 1388 to 1392 were examined. The research results have shown that household health and treatment expenses in the country's provinces have a positive and significant relationship with insurance demand. It was also found that inflation has a negative relationship with insurance demand. Among other variables examined in this research is per capita income. The results showed that there is no significant relationship between per capita income and demand for insurance. That is, the increase or decrease in the nominal income of people does not affect the demand for insurance. The relationship between the demand for complementary health insurance and all factors affecting it is consistent with theoretical expectations. In the estimated model, the value of width from the origin of 30 provinces of the country is statistically different. This difference may be due to the special economic, cultural and social characteristics of the country's provinces, which must be taken into account for the expansion of health insurance.

Key words: demand function, health insurance, health insurance, per capita income, inflation

Introduction

In today's active and risky life, insurance is a necessity and as civilization develops, due to new dangers and risks that threaten human life and peace, it plays a role in providing for the future of people. The peace of mind of the community, economic, social development and human well-being become more apparent. Therefore, insurance as a method of dealing with risk is a response to uncertain and risky conditions (Fransva, 2002). One of the dangers facing humanity is a disease that imposes a lot of medical expenses on patients. The risk of illness can be compensated through medical insurance. In fact, facing the random nature of health is one of the economic issues affecting human life. The importance of this issue comes from the fact that the disease can affect the welfare of economic entities by applying two types of costs: first, the medical costs needed to improve or cure the disease and second, the wage income that is likely to be lost during the disease period. This fact leads to the willingness to pay for coverage against the disease and, more precisely, stimulates the demand for health insurance. The basic microeconomics model describing the demand for insurance (medical treatment) often analyzes the behavior of economic entities by using the all-or-nothing purchase framework (Nakhai Aghmiuni and Kamoui, 2019). Below are the goals and hypotheses based on the model. Finally, with a brief description of the stages of the research implementation, the conceptual model and the introduction of variables have been presented.

1-2- Statement of the problem

Due to the type of their activities, insurance companies are in the category of commercial affairs, and in terms of the service aspect of their activities, they offer a kind of commitment and an intangible and intangible product that the customer (insurer) cannot get an accurate assessment of when making purchase expenses (paying insurance premiums). (Singerman, 2010) Therefore, the seller (insurer) must establish and strengthen the trust limit (which is the fundamental principle in the insurance industry) before providing the service to the policyholder and the insured in order to be able to surpass the competitors, and this can be achieved through transparent information, marketing and providing optimal services. One of the most suitable ways to attract potential insurance policy holders can be mentioned according to the wishes, expectations and factors affecting the demand of potential insurance policy holders. Also, in order to find out the reasons for the profitability of medical insurance for insurance companies, the characteristics of its supply and demand sides should be identified so that solutions can be provided to improve and improve it (Ghanbari et al., 2009). Such patterns consider the level of desirability as a hidden variable that the consumer's decision to buy or not to buy insurance coverage determines its status (Pezhoyan and Porpertoi, 2012).In the current research, single demand equations are used to identify the factors affecting the demand for complementary health insurance. In econometric methods, modeling can be based on microeconomic theories or macro assumptions. Patterns based on microeconomic theories are the systematic form of demand functions and relate to the allocation of the total consumer budget to a set of different goods. These functions are obtained by maximizing the specific utility function.

According to the mentioned econometric model; The main issue of the research is what factors affect the demand for medical insurance in the country. So that we can get the tension of the identified factors from this passage. Therefore, the main goal of the current research is to examine the variables affecting the demand for supplementary medical insurance so that by knowing these factors, insurance companies can help in planning for the prosperity of this branch of insurance. Inadequate quality of services and their lack of organization in the form of supplementary medical insurance service packages, the services provided do not have the necessary utility, in addition to this, the losses of supplementary medical insurance contracts have made insurance companies reluctant to issue these insurance policies. For example, in 1385 and 1386, the loss ratio of the medical insurance field was 65.16% and 73.96%, respectively (statistical report on the performance of the country's insurance industry, 1379-1387). For this reason, this important field of insurance, which is a new industry, has not developed much. In order to find out the causes of the low profitability of medical insurance for insurance companies, the characteristics of its supply and demand sides should be identified in order to provide solutions for its improvement and promotion (Dagheghi et al., 2009). Medical insurances distribute the costs of the disease among a large number of people by distributing the possible damages among the insured persons and not only reduces the burden of the costs for the patients, but also brings assurance to all the insured that social and private (commercial) insurances are provided in two forms. The scope of providing services to patients is so wide that it is not possible from an economic point of view to provide all services within the framework of basic (social) insurance. Also, the rising trend of diagnostic costs, the introduction of expensive medical technologies, advances in medical science and the invention of new methods have made it practically impossible to cover all treatment costs in the scope of basic health insurance in the public sector. The natural result of this process will be the entry of private insurance into the field of health services, which has made the need to create and develop this type of insurance in the country (Nusratnejad et al., 2013).

Therefore, it is necessary to examine the factors that affect the demand for health insurance and also the income elasticity of consumers. In the current research, the demand function of supplementary medical insurance for the provinces of the country has been estimated. 1-4- Theoretical framework The theoretical framework is the basis on which the entire research relies. It is a logical, developed, described and complete network between the variables that have been identified through processes such as interviews, observation and literature review of the subject of the research background. These variables are related to the research problem. A good theoretical framework identifies and shows important and effective variables in the conditions related to a defined problem and describes the relationship between variables in a logical way (Khaki, 2019, 32). The theoretical framework expresses the relationships governing the independent and dependent variables based on thematic literature. The theoretical framework of the current research is derived from the econometric model that has been used by many researchers, such as Tahiki Mazar and colleagues in 2009.

In this research, by choosing important and effective variables on the demand for medical insurance in selected provinces, the general form is as follows:

MED: medical insurance premium

INC: per capita income

EXP: health and medical expenses

INF: Inflation

The following function shows the relationship between complementary treatment insurance premiums and the factors influencing it:

t: The desired time period is from 1388 to 1392.

i: The desired periods, which are 30 provinces of the country (minus Alborz province).