Trust & Insurance Markets
AbstractTrust is a key determinants of any financial transaction. Exchanges in insurance markets are a particular type of financial transaction where a current payment – the premium – is exchanged for a promise of a future, contingent payment – the indemnity due when the casualty occurs. We argue that trust is key in fostering these type of exchanges. Trust enters two ways: because it affects the willingness of the company to supply insurance when the insured can cheat by claiming indemnities that are not due. Because it discourages people from purchasing insurance if they do not trust the company's promise of readily paying the indemnity when due. We prove theoretically and empirically the relevance of trust in insurance exchanges and discuss policies to foster it.
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Bibliographic InfoPaper provided by Einaudi Institute for Economics and Finance (EIEF) in its series EIEF Working Papers Series with number 1207.
Length: 26 pages
Date of creation: 2012
Date of revision: Jul 2012
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-08-23 (All new papers)
- NEP-IAS-2012-08-23 (Insurance Economics)
- NEP-SOC-2012-08-23 (Social Norms & Social Capital)
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