Risk Aversion, Insurance Insurance, and the Limits of Regulation

Abstract

The heart of insurance – what enables insurance to function – is risk aversion. It follows from the fact that potential policyholders are risk averse that sometimes they are also averse to the risk that insurance covering a loss will not be available or will not be reliable. In this Article I show that administrative and judicial regulation is sometimes directed at providing insurance against these risks. I call this “insurance insurance,” and explore where this way of thinking about the potential insurance insurance features of the regulation of insurance may lead.

Keywords: insurance, insurance regulation

JEL Classification: K23