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Advances in Social Sciences Research Journal – Vol. 9, No. 3
Publication Date: March 25, 2022
DOI:10.14738/assrj.93.12019. Kiu, M., & Wang, W. (2022). A Literature Review of Networking Research in Insurance. Advances in Social Sciences Research Journal,
9(3). 110-117.
Services for Science and Education – United Kingdom
A Literature Review of Networking Research in Insurance
Ming Liu
School of Insurance
Central University of Finance and Economics, Beijing, China
Wei Wang
School of Insurance
Central University of Finance and Economics, Beijing, China
ABSTRACT
The role of insurance institutions in the economic network is no longer only that of
a loss compensator, but also of a risk transfer intermediary and supervisor of payer.
In this process, insurance institutions gradually established their status as credit
centre. Numerous theoretical studies and practices show that with the development
of society, insurance has increasingly become an important factor and even one of
the driving forces for economic development. Insurance reflects its value and status
in many ways, whether it is the basic social security function or the indispensable
importance of ensuring the smooth operation of business. It is worth noting that in
recent years, the reform of the medical system has aroused the attention to the
phenomenon of "narrow network", which is just for further study of insurance
institutions (companies, institutions) and economic individuals (natural persons,
The interaction between institutions) provides an opportunity. This paper strives
to summarize and reflect the frontiers and dynamics of insurance network research
in recent years, and expects to lead to the focus and direction of future insurance
research at one time, and expects to provide new ideas and new paths.
Keywords: Insurance; network research.
INTRODUCTION
The risk faced by the economy and society are different from time to time. With the interaction
between the insurance industry and other economies also changes, people's understanding of
risks is also deepening, such that the demand for insurance functions is gradually increasing.
Many practices show that insurance has increasingly become one of the important checks and
balances and even one of the driving forces for economic development. The study of risk is no
longer focused on the probability of risk occurrence, but also has the structure of economic
networks. Because the probability of risk occurrence determines whether it occurs, and the
economic network structure determines the degree of harm of the risk, this puts forward new
requirements for insurance. The role of insurance institutions in economic networks is no
longer just a loss compensator, but also a risk transfer intermediary, in which it is monitored of
payment. In this process, insurance institutions, as an important tool for risk transfer between
various economic entities, also laid their corresponding credit center status. In order to further
help them absorb and diversify risks, insurance institutions have formed a networked risk
management through various means such as equity, lending and reinsurance. The different risk
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Kiu, M., & Wang, W. (2022). A Literature Review of Networking Research in Insurance. Advances in Social Sciences Research Journal, 9(3). 110-117.
URL: http://dx.doi.org/10.14738/assrj.93.12019
management network structures of this group determine different coping methods and
management difficulties, which affects the operation and management behavior of insurance
entities. Such behavior, through its unique position as a market credit center, further exerts its
effect on the structure of the economic network. Many practices show that insurance has
increasingly become one of the important checks and balances and even one of the driving
forces for economic development. Although there have been many studies exploring the
relationship between insurance and economic development, there is still a lack of research on
how insurance should play a unique role in maintaining and promoting social economic
development in the new situation.
Numerous theoretical studies and practices show that with the development of society,
insurance has increasingly become one of the important factors and even driving forces of
economic development. Insurance reflects its value and status in many ways, whether it is the
basic social security function or the indispensable importance of ensuring the smooth operation
of business. Its role is mainly reflected in reducing market transaction costs, establishing a risk
diversification system, and providing new link opportunities in the market. First of all, in terms
of reducing the cost of market transactions, due to the existence of uncertainty and risk in the
market, the market itself does not have a trust mechanism in a single transaction, and the real
trust comes from repeated transactions. Repeated transactions inevitably come at a cost. As a
market intermediary, insurance companies establish a relatively good credit system instead of
the repeated transaction model of the market, and replace the repeated transaction costs of the
market with insurance costs. Secondly, due to the different risks faced by market entities and
the existence of information asymmetry, a single economy itself cannot independently and
accurately judge the size of the risk, nor can it make the risk evenly apportioned, while the
insurance company can make the risk can be measured by subdividing and summing up, and
transfer the risk of the original enterprise to the entire market by providing risk disposal, and
reduce the impact of uncertainty through the risk exchange and transfer mechanism. Third, the
attitude of different socio-economic status to risk is not the same, but the risks they face are not
the same, the insurance system in the process of subdivision and aggregation, can cross all
levels of economic life, according to different risk matching standards to establish a
corresponding matching system, in the process of establishing new market link opportunities.
Although there has been a lot of research on the relationship between insurance and economic
development, it is about how insurance should play a role in maintaining stability in the new
situation Research on the unique role of promoting socio-economic development is still
relatively lacking. Most of the research is aimed at insurance institutions or insurance products
themselves, but insurance is embedded in the market as a financial intermediary, and its
research cannot be separated from the market.
RESEARCH ON ECONOMIC NETWORKS
From a sociological point of view, different scholars give slightly different definitions, but
basically believe that social networks are composed of a series of nodes in different
relationships, which can include individuals, organizations, or countries. Relationships can be
economic relationships, channels of communication, business transactions, equity, lending, etc.
Early, research into social networks focused primarily on microeconomic theory, using
network structures for things like the internal organization of firms [1][2], job search [3], and
information transmission [4], the structure of the route [5][6], The Marriage Network and its
Economic Impact [7][8], and network game problems with commutative structures, etc.[9]
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In economic research, Jackson and Wolinsky [10] for the first time combined social network
research and economics, by studying the formation and maintenance behavior of each node for
its own links, and revealing the reasons for the formation of different socio-economic network
structures on a certain process. However, due to its mandatory constraints on the problem of
transaction costs, the model is also lacking in explanatory power. Subsequently, empirical
analysis of various applications such as obtaining information about job opportunities found
that the behavior chosen by companies is largely affected by the network structure in which
the company is located, which further confirms the important role of network analysis [11][12].
For example, the competitive advantage of enterprises in the network is not in the densely
related area, but in the gap of the densely related area, and the enterprise in the structural hole
position has the information advantage and control advantage, and has more competitive
advantage than the enterprise in other locations [13]. In Jackson summarized and gave the
topology of economic and social networks, and defined specific research tools including node
research, diffusion algorithms, network learning algorithms, etc[14]. The current economic
activity has relied on a complex network system, and the degree of correlation between
economic individuals is getting more intensive. In this context, although insurance is in the
position of a specific market credit center, the relationship between insurance and economic
growth mainly stays in the comparative study of the correlation between insurance and macro
data [15][16][17][18].
NETWORKED STUDY ON INSURANCE RISK-SHARING
Insurance is to subdivide and summarize risk, relying on the law of large numbers to transform
risk from decentralized and uncontrollable to stable and controllable means. In the existing
literature, the research on risk sharing is mainly divided into two types of risk sharing models
between individuals and institutions.
The study of the allocation model between individuals mainly focuses on informal insurance
(i.e., without the participation of an insurance company or a centralized institution, it is
generally manifested as mutual insurance, exchange schemes, etc. Generally speaking, it refers
to the risk-sharing process formed between individuals that are not centralized in the study,
through non-mandatory (no contractual agreement) mutual activities. For example, in the
study of Fachamps and Lund[19], network analysis was first applied to the insurance field in
developing countries, and by observing the operation mode of spontaneous mutual assistance
behavior among subjects, they paid attention to the diffusion process of network information
and capital that determines the structure of the mutual aid system and the main factors
affecting its smooth operation. Bramoulléa, Krantonb have found that according to the different
individuals at risk, the main network and the self-network are formed autonomously, and the
sub-network must be neither too large nor too small, so as to prevent the edge nodes from
autonomously cutting off the link between the link and the main network, resulting in the risk
not being apportioned in time[20]. Bloch, Genicot, and Ray added the effect of social norms on
individual decision-making and found that web links play two different roles[21]. First, they act
as conduits for transfer. Second, they act as conduits for information. These characteristics
affect the size of the subnetwork, and the structure of the primary network affects the risk- sharing effect and the stability of the network.
Risk-sharing between institutions is generally highly mandatory, and research focuses on the
structure of networks between firms and risk transfer issues. Insurance companies have
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Kiu, M., & Wang, W. (2022). A Literature Review of Networking Research in Insurance. Advances in Social Sciences Research Journal, 9(3). 110-117.
URL: http://dx.doi.org/10.14738/assrj.93.12019
formed a networked risk management structure through equity, lending, reinsurance and other
forms to help them absorb and diversify risks. The different risk sharing network structures
determine different risk response methods, which will affect the difficulty of risk control in the
region and further affect the operation and management behavior of insurance companies.
Since insurance risk is generally apportioned through reinsurance networks, and there is a risk
contagion relationship in the reinsurance system, the study of the contagiousness of risk
networks has also become a topic of concern for scholars. Kanno through statistical methods,
for the first time, a risk-sharing network for insurance and reinsurance was constructed [22].
And He studied the marginal systemic risk contribution of each insurer to the entire Asia-Pacific
insurance industry during and after the global financial crisis was carefully studied. Based on
this analysis also by taking into account each country “Policyholder Protection Plan”, which
then combines dynamic conditional correlation to use distress insurance premiums as a
criterion for systemic risk measurement. The network structure between insurance institutions
determines the ability and stability of the network to cope with risks. Under the network
framework, Park and Xie studied U.S. property and casualty reinsurance counterparty risk and
provides evidence that the bankruptcy of certain reinsurers does not lead to the general failure
of U.S. non-life insurers within the structure of the U.S. insurance non-life insurance network
[23]. Their research on the U.S. non-life insurance market shows even as much as that 10th of
a top company or insurance group defaulting at the same time, the US non-life insurance market
can still maintain considerable stability. This gives the U.S. insurance market plenty of room for
risk management tools to be applied. For the china’s insurance market, under the framework
of Kanno’s network, while Niu X.J. and Wu X.M. points out that the insurance risk sharing
network is divided into two different types: closely linked and key node risk concentration, and
the study shows that the key node concentration network is more unstable than the closely
linked network [24]. That is to say, once the risk occurs in the insurance institutions at key
nodes of the insurance network (too big to fall), it will have a great impact on the stability of
China's insurance network. Lu and Su analyzed the data of the Chinese property insurance
industry during year 2009 to 2018 by using the complex network theory model, the
transmission process of underwriting risk is simulated. And the trajectory and extent of the
impact of underwriting risk on the systemic risk of the property insurance industry are
analyzed [25]. The results show that the underwriting business network of China's property
insurance industry is getting closer and closer, and the increase in underwriting risk will lead
to the risk of infection, which in turn will lead to the outbreak of systemic risks. But in the course
of contagion of the underwriting risk, the loss decreases at least several times the rate;
Insurance institutions mainly lose more in the underwriting risk and the first two rounds of
infection, and are less likely to fall into crisis in subsequent contagion rounds.
It can be seen from the above research that the research on informal insurance mainly focuses
on the interaction of time between individuals or groups, and the research on the network of
insurance institutions mainly focuses on risk transmission. The modern economy is a complex
network system, and for the role of insurance and economic development.
The status of the insurance credit center determines that its behavior cannot get rid of the
influence of the economic network in which it is located, the study of its economic behavior is
no longer limited to the interaction behavior between individuals, but needs to consider its
position in the economic network and the network structure of the network. At the same time,
the breakthrough in economic network research in recent years provides us with a new
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perspective and tool for studying the relationship between insurance and the economy. This
allows us to discuss the relationship between insurance and the economic system within the
framework of economic networks. Relevant studies have shown that the relationship is an
interaction, which is manifested in the fact that the risk-sharing network structure of the
insurance system will affect its economic behavior, and the economic network will also respond
to the corresponding behavior, and eventually the two sides will reach a relatively stable
equilibrium state under certain conditions. However, there is a lack of research on how
insurance mechanisms directly affect the economy through their own structure, and how the
economic system affects the insurance system.
RESEARCH ON THE "NARROW NETWORK"
The term "narrow network" is derived from narrow network insurance plans, which essentially
refer to insurance plans in a medical insurance plan in which an insurance company excludes
some medical institutions from its designated network of claims service providers. In this
article, the narrow network phenomenon referred to extends its concept to the exclusion of
insurance institutions from designating claims institutions and underwriters from selecting
claims service providers (e.g., car repairers, medical institutions, and groups of service
providers that can provide services for insurance institutions to settle claims) and consumers.
Insurance companies gather related social homogenization risks, thus becoming the largest
bearers of related socio-economic risks, and they have the motivation to reduce the cost of risk
disposal, and the most effective solution is selective, which is not a new phenomenon. Dating
back to the 1980s, managed health insurers in the United States have used exclusion methods
to steer patients to more cost-effective or higher-quality hospitals and doctors, and to negotiate
lower reimbursement rates. "Managed care" in the 1990s was strongly opposed in the 1990s
for fear that restrictive insurers could adversely affect consumers [26], or for patients who
might be accustomed to "skimming" healthier patients [27], regulators at the state and federal
levels in the United States are considering formal network adequacy standards for business
plans and programs offered by national insurance exchanges. Obama's health care reform in
2010 made it impossible for insurers to obtain high-quality insured persons from the network
through denial of insurance, making the "narrow network" behavior of insurance companies
more common.
In terms of theoretical research, the narrow network effect provides us with a good opportunity
to study insurance networks. By choosing a "narrow network" service model, in fact, in addition
to adding network nodes, insurance companies have increased the adequacy of the network,
making the operation of existing networks more efficient [28], and this service model has a
strong dependence on the regional economy. In their 2019 article, Ho and Lee used Nash-in- Nash with, which they developed in 2017 The threat of replacement model, which assesses the
consequences of a "narrow" network of hospitals in the commercial healthcare market [26]. By
capturing the motivations of insurers' choices and combining them with California data, the
model derives a "narrow network" approach that can significantly reduce California resident
healthcare costs and improve consumer welfare while negotiating hospital rates for insurers
that are drastically reduced.
In terms of empirical research, Dafny, Hendel, and Wilson point out that insurers' adoption of a
"narrow network" (provider selection behavior) approach has indeed improved the efficiency
of healthcare networks in the region[29]. Second, the "narrow network" behavior did not have
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Kiu, M., & Wang, W. (2022). A Literature Review of Networking Research in Insurance. Advances in Social Sciences Research Journal, 9(3). 110-117.
URL: http://dx.doi.org/10.14738/assrj.93.12019
much impact on the collection of premiums by insurance companies. However, the study is only
the case in one state in the United States within a year, and in 2015, the state's market may not
have reached stability and is still in the process of change, so the study has considerable
limitations. Therefore, in 2017 they re-compared data from insurance companies across the
country and found that state exchange programs with "narrow networks" had a lower average
premium compared to other similar programs. This proves that the "narrow network" program
improves the efficiency of insurance. Shepard used consumer demand models and insurers'
costs to examine the incentives faced by Massachusetts Exchange insurers [30]. In a "narrow
network" model where participants are selected based on health risks and preferences for high- priced hospitals, insurers have an incentive to exclude a large, expensive hospital system from
their network. Polsky, Weiner, and Zhang were on 4354 of the 50 U.S. states in 2017 Surveys
conducted by qualified healthcare organizations found that the narrow network effect has a
distinctly regional character, with a predominance of concentrations on the West Coast of the
United States, Florida, and the Northern United States[31]. This shows that the "narrow
network" has a strong dependence on the economic and social relations of the region. Similarly,
a study of OscarHealth, a new type of Internet insurer in the United States, also shows that the
company has adopted a different strategy due to geographical differences in the expansion of
the medical service network. For example, in New York and New Jersey, two of the earliest
developed markets, OscarHealth expanded rapidly by renting other smaller healthcare
networks, moving away from time-consuming, self-built healthcare networks. In 2015,
OscarHealth began to enter California in the west and Texas in the south, adopting a "narrow
network" development strategy. OscarHealth in California is also involved in providing medical
services to users, sharing costs and profits with healthcare providers, rather than just providing
benefits like traditional insurance companies.
The "narrow network" effect proves that insurance companies have the motivation and the
ability to allocate social resources through the ability to manage risk under certain conditions.
The results were also supported by economic research [32]. The findings show that if a society
needs a Pareto equilibrium, then the economic activity in that society must be fully insured, and
full insurance is a sufficient requirement for this conclusion. The narrow network phenomenon
happens to be one of the important forms of interaction between insurance institutions and
economic individuals (persons, institutions, etc. that have a demand for insurance, institutions,
etc.) that become the claim service provider of insurance institutions, and studying the narrow
network phenomenon helps us to better understand the interaction between insurance and the
economy.
CONCLUSION
In general, recent years, there have been many research results on socio-economic networks,
especially the emergence of networked research methods and related research tools, so that
people can discuss and understand economic networks more effectively. Through the
exploration of the formation mechanism of the risk sharing network and the risk transferability,
the structure and operation mechanism of the insurance risk sharing network can also be well
depicted as the impact on the stability of the economic network. However, there is still a lack of
research on how insurance mechanisms interact with economic networks and how they
interact with each other. Although the beginning of the "narrow network" effect has provided
an opportunity for the study and solution of this problem, there has not been much progress in
this regard. Therefore, on the basis of the existing academic research results, further focusing