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

Journal of Risk and Insurance, Vol. 83, No. 2, 2016

Posted: 21 Dec 2011 Last revised: 21 Jan 2017

Richard Peter

University of Iowa

Andreas Richter

Ludwig Maximilian University of Munich - Faculty of Business Administration (Munich School of Management)

Petra Steinorth

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

Multiple version iconThere are 2 versions of this paper

Date Written: 2016

Abstract

The article shows that heterogeneous incomplete private information can explain the limited existence of guaranteed renewable health insurance (GR) contracts in an otherwise frictionless markets. We derive a unique equilibrium that 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.

Keywords: risk classification, insurance economics, private information

JEL Classification: D11, D42, D82, G22

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 (2016). Journal of Risk and Insurance, Vol. 83, No. 2, 2016 . Available at SSRN: https://ssrn.com/abstract=1974919 or http://dx.doi.org/10.2139/ssrn.1974919

Richard Peter (Contact Author)

University of Iowa ( email )

341 Schaeffer Hall
Iowa City, IA 52242-1097
United States

Andreas Richter

Ludwig Maximilian University of Munich - 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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