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Whoops! It Happened Again: Demand for Insurance That Covers Multiple Risks

Author

Listed:
  • Liang Hong

    (Department of Mathematical Sciences, The University of Texas at Dallas, Richardson, TX 75080, USA)

  • Harris Schlesinger

    (Department of Economics, Finance, and Legal Studies, University of Alabama, Tuscaloosa, AL 35487, USA)

  • Boyi Zhuang

    (Alabama Center for Insurance Information and Research, Culverhouse College of Business, University of Alabama, 1500 Greensboro Ave Suite 2, Box 870397, Tuscaloosa, AL 35487, USA)

Abstract

This article studies insurance demand in a two-period framework in which an individual faces risks in both current and future periods. Models for insurance with and without the presence of endogenous saving are both discussed. In contrast to what most literature suggests, when decisions on insurance and saving are made separately, insurance alone does not always unambiguously reduce risk, and decision makers might demand more insurance when there is a positive loading on the premium than when the insurance price is actuarially fair. We compare the demand for insurance in our framework with that in a two-period model where risk is concentrated in the second period and derive the conditions under which these demands differ. We examine the effects of risk aversion and derive the conditions under which a more risk-averse individual demands more or less insurance.

Suggested Citation

  • Liang Hong & Harris Schlesinger & Boyi Zhuang, 2023. "Whoops! It Happened Again: Demand for Insurance That Covers Multiple Risks," Risks, MDPI, vol. 11(4), pages 1-17, April.
    • Handle: RePEc:gam:jrisks:v:11:y:2023:i:4:p:73-:d:1119950
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    References listed on IDEAS

    as
    1. Claude Fluet & François Pannequin, 1997. "Complete Versus Incomplete Insurance Contracts under Adverse Selection with Multiple Risks," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 22(2), pages 81-101, December.
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