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The Formation of Mutual Insurers in Markets with Adverse Selection

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  • James A. Ligon

    (University of Alabama)

  • Paul D. Thistle

    (University of NevadaLas Vegas)

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    Abstract

    The size distribution of mutual property-liability insurers has a larger proportion of relatively small companies than the size distribution of stock property-liability insurers. Small mutuals are unlikely to offer risk-sharing advantages over conventional insurance, so these firms must offer their members other advantages. This article develops a theoretical model showing that these mutuals may offer advantages over conventional insurance in addressing problems of adverse selection. When adverse selection exists, conventional insurers may coexist with small mutuals. Small mutuals may be strictly preferred by low-risk individuals. The size of the mutuals is limited by asymmetric information problems.

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    File URL: http://www.journals.uchicago.edu/cgi-bin/resolve?JB780205
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    Bibliographic Info

    Article provided by University of Chicago Press in its journal Journal of Business.

    Volume (Year): 78 (2005)
    Issue (Month): 2 (March)
    Pages: 529-556

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    Handle: RePEc:ucp:jnlbus:v:78:y:2005:i:2:p:529-556

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    Web page: http://www.journals.uchicago.edu/JB/

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    Cited by:
    1. Georges Dionne & Nathalie Fombaron & Neil Doherty, 2012. "Adverse Selection in Insurance Contracting," Cahiers de recherche 1231, CIRPEE.
    2. Patricia Born & M. Martin Boyer, 2011. "Claims‐Made and Reported Policies and Insurer Profitability in Medical Malpractice," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 78(1), pages 139-162, 03.
    3. Renaud Bourl�s & Dominique Henriet, 2012. "Risk-sharing Contracts with Asymmetric Information," The Geneva Risk and Insurance Review, Palgrave Macmillan, vol. 37(1), pages 27-56, March.
    4. Pierre Picard, 2009. "Participating insurance contracts and the Rothschild-Stiglitz equilibrium puzzle," Working Papers hal-00413825, HAL.
    5. Francesca Barigozzi & Renaud Bourlès & Dominique Henriet & Giuseppe Pignataro, 2011. "Risk-sharing with self-insurance: the role of cooperation," Working Papers halshs-00605267, HAL.

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