How Do Cost and Regulation Change Loss Control Activities and Insurers' Monitoring?

Journal of Insurance Issues, 2011, 34 (2): 172-188

18 Pages Posted: 13 May 2012

See all articles by Yoshihiro Asai

Yoshihiro Asai

Meiji University; Meiji University

Mahito Okura

Doshisha Women's College of Liberal Arts

Date Written: 2011

Abstract

This study uses game theory to consider the impact of loss control (LC) and monitoring costs on insurers’ monitoring activities and investigate how the level of the insurance premium changes monitoring activities. The main results are as follows. First, a firm always undertakes LC when the LC cost is low. Second, when the insurer can spontaneously choose the level of the insurance premium, the insurer’s incentive to monitor the firm decreases and LC activities will not be promoted, because the cost of an accident can be directly reflected in the level of the insurance premium. In contrast, when the level of the insurance premium is exogenously decided, the insurer’s incentive to monitor the firm increases and LC activities will be promoted, because the cost of accidents cannot be directly reflected in the level of the insurance premium.

Keywords: loss control, monitoring, deregulation, game theory

Suggested Citation

Asai, Yoshihiro and Asai, Yoshihiro and Okura, Mahito, How Do Cost and Regulation Change Loss Control Activities and Insurers' Monitoring? (2011). Journal of Insurance Issues, 2011, 34 (2): 172-188, Available at SSRN: https://ssrn.com/abstract=2056803

Meiji University ( email )

Kanda-Surugadai 1-1
Chiyoda, Tokyo 101-8301
Japan

Mahito Okura

Doshisha Women's College of Liberal Arts ( email )

Kodo
Kyotanabe
Kyoto, 610-0395
Japan

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
21
Abstract Views
326
PlumX Metrics