Abstract

http://ssrn.com/abstract=1974919
 


 



Yes, No, Perhaps? - Premium Risk and Guaranteed Renewable Insurance Contracts with Heterogeneous Incomplete Private Information


Richard Peter


Ludwig-Maximilians-Universität München - Faculty of Business Administration (Munich School of Management)

Andreas Richter


Ludwig-Maximilians-Universität München - Faculty of Business Administration (Munich School of Management)

Petra Steinorth


St. John's University - Peter J. Tobin College of Business

January 28, 2014

Munich Risk and Insurance Center Working Paper No. 1

Abstract:     
The paper shows that heterogeneous incomplete private information (HIPI) can explain the limited existence of guaranteed renewable health insurance (GR) contracts in an otherwise frictionless market. We derive a unique equilibrium which can be of the form that either only a portion of the population or none will cover themselves against premium risk with a GR contract. Increased risk aversion, increased premium risk and first-order stochastic improvements of the distribution of private information increase the likelihood of positive take-up. In case GR contracts are in demand, increased risk aversion and first-order stochastic improvements of the distribution of private information lead to more individuals purchasing the GR contract.

Number of Pages in PDF File: 23

Keywords: risk classification, insurance economics, private information

JEL Classification: D11, D42, D82, G22

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Date posted: December 21, 2011 ; Last revised: January 29, 2014

Suggested Citation

Peter, Richard and Richter, Andreas and Steinorth, Petra, Yes, No, Perhaps? - Premium Risk and Guaranteed Renewable Insurance Contracts with Heterogeneous Incomplete Private Information (January 28, 2014). Munich Risk and Insurance Center Working Paper No. 1. Available at SSRN: http://ssrn.com/abstract=1974919 or http://dx.doi.org/10.2139/ssrn.1974919

Contact Information

Richard Peter (Contact Author)
Ludwig-Maximilians-Universität München - Faculty of Business Administration (Munich School of Management) ( email )
Kaulbachstr. 45
Munich, 80539
Germany
Andreas Richter
Ludwig-Maximilians-Universität München - Faculty of Business Administration (Munich School of Management) ( email )
Schackstraße 4
Munich, 80539
Germany
Petra Steinorth
St. John's University - Peter J. Tobin College of Business ( email )
New York, NY
United States
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