Optimal Premium Pricing in a Competitive Stochastic Insurance Market with Incomplete Information: A Bayesian Game-theoretic Approach

Insurance: Mathematics and Economics, Volume 119, pp. 32-47. November 2024, DOI: 10.1016/j.insmatheco.2024.07.006

51 Pages Posted: 18 Aug 2023

See all articles by Fotios Mourdoukoutas

Fotios Mourdoukoutas

The University of Hong Kong - Department of Statistics and Actuarial Science

Tim J. Boonen

University of Hong Kong

Bonsoo Koo

Monash Business School

Athanasios A. Pantelous

Monash University - Department of Econometrics & Business Statistics

Date Written: August 14, 2023

Abstract

This paper examines a stochastic one-period insurance market with incomplete information. The aggregate amount of claims follows a compound Poisson distribution. Insurers are assumed to be exponential utility maximizers, with their degree of risk aversion forming their private information. A premium strategy is defined as a mapping between risk-aversion types and premium rates. The optimal premium strategies are denoted by the pure-strategy Bayesian Nash equilibrium, whose existence and uniqueness are demonstrated under specific conditions on the insurer-specific demand functions. Boundary and monotonicity properties for equilibrium premium strategies are derived.

Keywords: Competitive Insurance Markets, Incomplete Information, Bayesian Nash Equilibrium, Combined Ratio. JEL classification: G22, C72, C73, C11

JEL Classification: G22, C72, C73, C11

Suggested Citation

Mourdoukoutas, Fotios and Boonen, Tim J. and Koo, Bonsoo and Pantelous, Athanasios A., Optimal Premium Pricing in a Competitive Stochastic Insurance Market with Incomplete Information: A Bayesian Game-theoretic Approach (August 14, 2023). Insurance: Mathematics and Economics, Volume 119, pp. 32-47. November 2024, DOI: 10.1016/j.insmatheco.2024.07.006, Available at SSRN: https://ssrn.com/abstract=4543526 or http://dx.doi.org/10.2139/ssrn.4543526

Fotios Mourdoukoutas

The University of Hong Kong - Department of Statistics and Actuarial Science ( email )

Pokfulam Road
Hong Kong
China

Tim J. Boonen

University of Hong Kong ( email )

Pokfulam Road
Hong Kong
China

Bonsoo Koo

Monash Business School ( email )

Wellington Road
Clayton, Victoria 3168
Australia
+61 3 9905 0547 (Phone)
+61 3 9905 5474 (Fax)

Athanasios A. Pantelous (Contact Author)

Monash University - Department of Econometrics & Business Statistics ( email )

Wellington Road
Clayton, Victoria 3168
Australia

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