China's insurance market has developed rapidly, in recent years, and the penetration and density of insurance have increased at a rapid rate. However, the moral hazard problem caused by the information asymmetry between policyholders and insurers has become more serious in the meantime. The moral hazard has reduced the effectiveness of the insurance market and hindered the healthy development of the insurance industry. In view of this situation, this paper proposes to use the retroactive premium method to solve the moral hazard problem in China property insurance market and the method could be summarized as the policyholder paying a certain percentage of premiums at the inception,while the remaining premiums are paid at the end of the insurance period and are linked to the amount of benefits. Based on the literature research method, this paper establishes a mathematical model based on the expected utility principle and incomplete information dynamic game, and verifies the rationality and feasibility of the method. Firstly, the paper compares the risk-averse person's optimal security level under the conditions of insurance and non-insurance proves the existence of moral hazard in the insurance market, and also validates the rationality of the relevant assumptions in this article based on the model assumptions in this article. Secondly, starting from the incomplete information dynamic game model, compare the optimal security level that policyholders will choose when they are not insured, paid regular premiums and paid retroactive premiums, which proves the rationality of choosing retroactive premiums in the prevention and control of moral hazard. In addition,the expected utility of both the policyholder and the insurer was calculated and compared based on the optimal security level chosen by the policyholder in three situations.The results indicated that in the case of retroactive premiums, selecting appropriate initial payment ratio and the degree of correlation between the period-end payment and the amount of benefit can achieve the maximum effectiveness of the policyholder and the insurer at the same time. Consequently, this result demonstrates the feasibility of using the retroactive premium in practice. Finally, this paper is basing on relevant model to compare retrospective premiums with the measures, such as providing a policy with a deductible or co-insurance rate, which are commonly used in the market to prevent moral hazard by providing partial insurance, and analyze the merits and demerits of the two. The advantages and disadvantages of retroactive premiums in solving moral hazards will be explained.
