Risk Classification with On-Demand Insurance

Journal of Risk and Insurance, Forthcoming

Swiss Finance Institute Research Paper No. 23-49

22 Pages Posted: 28 Apr 2023 Last revised: 22 Jun 2023

See all articles by Alexander Braun

Alexander Braun

Institute of Insurance Economics (University of St. Gallen); Swiss Finance Institute

Niklas Häusle

Institute of Insurance Economics (University St. Gallen)

Paul D. Thistle

University of Nevada, Las Vegas - Department of Finance

Date Written: April 25, 2023

Abstract

On-demand insurance is an innovative business model from the InsurTech space, which provides coverage for episodic risks. It makes use of a simple fact in a practical way: People differ in their frequency of exposure as well as the probability of loss. The extra dimension of heterogeneity can be used to screen the insured and shifts the utility-possibility frontier outwards. We provide a sufficient condition under which type-specific full insurance at the actuarially fair price is incentive compatible. We also show that our results hold for various real-world implementations of on-demand insurance.

Keywords: adverse selection, efficiency, risk classification, insurance, insurtech, business models

JEL Classification: D82, D86, G22

Suggested Citation

Braun, Alexander and Häusle, Niklas and Thistle, Paul D., Risk Classification with On-Demand Insurance (April 25, 2023). Journal of Risk and Insurance, Forthcoming , Swiss Finance Institute Research Paper No. 23-49, Available at SSRN: https://ssrn.com/abstract=4428411

Alexander Braun

Institute of Insurance Economics (University of St. Gallen) ( email )

Tannenstrasse 19
St. Gallen, 9000
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

HOME PAGE: http://https://www.alexandria.unisg.ch/persons/2621

Niklas Häusle (Contact Author)

Institute of Insurance Economics (University St. Gallen)

Tannenstrasse 19
St. Gallen, 9000
Switzerland

Paul D. Thistle

University of Nevada, Las Vegas - Department of Finance ( email )

4505 S. Maryland Parkway
Las Vegas, NV 89154
United States
702-895-3856 (Phone)
702-895-4650 (Fax)

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