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Risk Classification with On-Demand Insurance

Author

Listed:
  • Alexander Braun

    (University of St. Gallen; Swiss Finance Institute)

  • Niklas Häusle

    (University of St. Gallen)

  • Paul D. Thistle

    (University of Nevada, Las Vegas)

Abstract

On-demand insurance is an innovative business model from the InsurTech space, which provides coverage for episodic risks. It makes use of a simple fact in a practical way: People differ in their frequency of exposure as well as the probability of loss. The extra dimension of heterogeneity can be used to screen the insured and shifts the utility-possibility frontier outwards. We provide a sufficient condition under which type-specific full insurance at the actuarially fair price is incentive compatible. We also show that our results hold for various real-world implementations of on-demand insurance.

Suggested Citation

  • Alexander Braun & Niklas Häusle & Paul D. Thistle, 2023. "Risk Classification with On-Demand Insurance," Swiss Finance Institute Research Paper Series 23-49, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2349
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    More about this item

    Keywords

    adverse selection; efficiency; risk classification; insurance; insurtech; business models;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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