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Fairness principles for insurance contracts in the presence of default risk

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  • Delia Coculescu
  • Freddy Delbaen

Abstract

We use the theory of cooperative games for the design of fair insurance contracts. An insurance contract needs to specify the premium to be paid and a possible participation in the benefit (or surplus) of the company. We suppose that a convex commonotonic premium functional is used to value the aggregated liability of the insurance company. It results from the analysis that when a contract is exposed to the default risk of the insurance company, ex‐ante equilibrium considerations require a certain participation in the benefit of the company to be specified in the contracts. The fair benefit participation of agents appears as an outcome of a game involving the residual risks induced by the default possibility and using fuzzy coalitions.

Suggested Citation

  • Delia Coculescu & Freddy Delbaen, 2022. "Fairness principles for insurance contracts in the presence of default risk," Mathematical Finance, Wiley Blackwell, vol. 32(2), pages 595-626, April.
    • Handle: RePEc:bla:mathfi:v:32:y:2022:i:2:p:595-626
    DOI: 10.1111/mafi.12344
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    References listed on IDEAS

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