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

23 Pages Posted: 23 May 2016

See all articles by Richard Peter

Richard Peter

University of Iowa

Andreas Richter

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

Petra Steinorth

University of Hamburg - Institute for Risk Management and Insurance

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Date Written: June 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.

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 (June 2016). Journal of Risk and Insurance, Vol. 83, Issue 2, pp. 363-385, 2016, Available at SSRN: https://ssrn.com/abstract=2782666 or http://dx.doi.org/10.1111/jori.12064

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 (LMU) - Faculty of Business Administration (Munich School of Management) ( email )

Schackstraße 4
Munich, 80539
Germany

Petra Steinorth

University of Hamburg - Institute for Risk Management and Insurance ( email )

Moorweidenstr. 18
Hamburg, 20148

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