The Cost of Biased Insurer Ratings
AbstractNumerous firms offer competing ratings of insurer financial condition. Insurance consumers, producers, and others commonly puzzle over which rating is more accurate. A 1994 Government Accounting Office (GAO) report judged the performance of a group of these insurance rating agencies. That report focused on Type I error (i.e., too high a rating on an insurer that defaults) rather than an appropriate balance between Type I and Type II error (i.e., too low a rating on an insurer that is financially stronger than indicated by the rating). This study investigates the consequences of focusing on Type I errors. We assume that both the demand and supply of insurance are related to an insurer’s rating. Using these assumptions, a model demonstrates the theoretical existence of a set of optimal insurer ratings and the societal cost imposed by rating-induced deviations from this set.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Western Risk and Insurance Association in its journal Journal of Insurance Issues.
Volume (Year): 21 (1998)
Issue (Month): 2 ()
Contact details of provider:
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (James Barrese).
If references are entirely missing, you can add them using this form.