From Ex Ante to Ex Post Risk Sharing: Cost-Effectiveness, Unfairness and Adverse Selection in Mutual Aid

Online mutual aid (MA) is a novel form of risk sharing empowered by InsurTechto provide critical illness coverage without involving an insurer. By shifting from exante premium to ex post sharing, MA platforms regularly publicize the informationof confirmed loss cases to their participants, including claimants’ diagnosed diseases,benefits and share contribution per participant. This paper shows that MA’s distinctive “paying after knowing” feature has largely shaped its cost-effectivenss. Wefirst provide a rigorous examination of the underpinning theory and conclude thatMA model’s low coverage cost is achieved through an effective ex post cost-sharingmechanism. In addition, MA plans suffers unfairness as they differentiate mem-bers only by gender and age group of large bandwidths. Using proprietary data onparticipants’ quitting behavior, our empirical analysis shows that participants areconscious about the public disclosure and confirms the existence of adverse selectiondue to the lack of actuarial fairness.