Optimal insurance without expected utility: The dual theory and the linearity of insurance contracts

1995 ◽  
Vol 10 (2) ◽  
pp. 157-179 ◽  
Author(s):  
Neil A. Doherty ◽  
Louis Eeckhoudt
Keyword(s):  
Expected Utility ◽  
Dual Theory ◽  
Optimal Insurance ◽  
Insurance Contracts

scholarly journals Optimal Insurance Coverage under Bonus-Malus Contracts

2001 ◽  
Vol 31 (1) ◽  
pp. 175-186 ◽  
Author(s):  
Jon Holtan
Keyword(s):  
Expected Utility ◽  
Insurance Coverage ◽  
Theoretical Framework ◽  
Point Of View ◽  
Pareto Optimal ◽  
Utility Model ◽  
Optimal Insurance ◽  
Insurance Contracts ◽  
Classical Studies ◽  
Expected Utility Model

AbstractThe paper analyses the questions: Should – or should not – an individual buy insurance? And if so, what insurance coverage should he or she prefer? Unlike classical studies of optimal insurance coverage, this paper analyses these questions from a bonus-malus point of view, that is, for insurance contracts with individual bonus-malus (experience rating or no-claim) adjustments. The paper outlines a set of new statements for bonus-malus contracts and compares them with corresponding classical statements for standard insurance contracts. The theoretical framework is an expected utility model, and both optimal coverage for a fixed premium function and Pareto optimal coverage are analyzed. The paper is an extension of another paper by the author, see Holtan (2001), where the necessary insight to – and concepts of – bonus-malus contracts are outlined.

scholarly journals Pareto-Optimal Insurance Contracts With Premium Budget and Minimum Charge Constraints

2019 ◽  
Author(s):  
Alexandru Vali Asimit ◽  
Ka Chun Cheung ◽  
Wing Fung Chong ◽  
Junlei Hu
Keyword(s):  
Pareto Optimal ◽  
Optimal Insurance ◽  
Insurance Contracts

scholarly journals Optimal Insurance under Maxmin Expected Utility

2020 ◽  
Author(s):  
Corina Birghila ◽  
Tim J. Boonen ◽  
Mario Ghossoub
Keyword(s):  
Expected Utility ◽  
Maxmin Expected Utility ◽  
Optimal Insurance

scholarly journals Measuring Ex Ante Welfare in Insurance Markets

2020 ◽  
Author(s):  
Nathaniel Hendren
Keyword(s):  
Willingness To Pay ◽  
Expected Utility ◽  
Low Income ◽  
Reduced Form ◽  
Cost Curve ◽  
Optimal Insurance ◽  
Percentage Difference ◽  
Ex Ante ◽  
Information Sets ◽  
Market Surplus

Abstract The willingness to pay for insurance captures the value of insurance against only the risk that remains when choices are observed. This article develops tools to measure the ex ante expected utility impact of insurance subsidies and mandates when choices are observed after some insurable information is revealed. The approach retains the transparency of using reduced-form willingness to pay and cost curves, but it adds one additional sufficient statistic: the percentage difference in marginal utilities between insured and uninsured. I provide an approach to estimate this additional statistic that uses only the reduced-form willingness to pay curve, combined with a measure of risk aversion. I compare the approach to structural approaches that require fully specifying the choice environment and information sets of individuals. I apply the approach using existing willingness to pay and cost curve estimates from the low-income health insurance exchange in Massachusetts. Ex ante optimal insurance prices are roughly 30% lower than prices that maximize observed market surplus. While mandates reduce market surplus, the results suggest they would actually increase ex ante expected utility.

scholarly journals OPTIMAL ASSET ALLOCATION IN LIFE INSURANCE: THE IMPACT OF REGULATION

2016 ◽  
Vol 46 (3) ◽  
pp. 605-626 ◽  
Author(s):  
An Chen ◽  
Peter Hieber
Keyword(s):  
Life Insurance ◽  
Asset Allocation ◽  
Regulatory Policy ◽  
Capital Requirements ◽  
Insurance Company ◽  
Traffic Light ◽  
Optimal Insurance ◽  
Insurance Contracts ◽  
Solvency Capital ◽  
The Impact

AbstractIn a typical equity-linked life insurance contract, the insurance company is entitled to a share of return surpluses as compensation for the return guarantee granted to the policyholders. The set of possible contract terms might, however, be restricted by a regulatory default constraint — a fact that can force the two parties to initiate sub-optimal insurance contracts. We show that this effect can be mitigated if regulatory policy is more flexible. We suggest that the regulator implement a traffic light system where companies are forced to reduce the riskiness of their asset allocation in distress. In a utility-based framework, we show that the introduction of such a system can increase the benefits of the policyholder without deteriorating the benefits of the insurance company. At the same time, default probabilities (and thus solvency capital requirements) can be reduced.

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