Insuring Non-Verifiable Losses
Neil A. Doherty
University of Pennsylvania - Insurance & Risk Management Department; University of Pennsylvania - Business & Public Policy Department
Vienna University of Economics and Business Administration
Vienna University of Economics and Business; Vienna Graduate School of Finance (VGSF)
November 1, 2011
Review of Finance, Forthcoming
Insurance contracts are often complex and difficult to verify outside the insurance relation. We show that standard one-period insurance policies with an upper limit and a deductible are the optimal incentive-compatible contracts in a competitive market with repeated interaction. Optimal group insurance policies involve a joint upper limit but individual deductibles and insurance brokers can play a role implementing such contracts for the group of clients. Our model provides new insights and predictions about the determinants of insurance.
Number of Pages in PDF File: 39
Keywords: Deductible Insurance, Upper Limit, Implicit Insurance Contracts, Insurance Brokers
JEL Classification: D86, G22, L14Accepted Paper Series
Date posted: November 20, 2010 ; Last revised: October 30, 2013
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