Risk Mutualization and Competition in Insurance Market
AbstractThe aim of this paper is to analyze the impact of mutual firms on competition in the insurance market. We distinguish two actors in this market: mutual firms, which belong to their pooled members, and traditional companies, which belong to their shareholders. Our approach differs from the literature by one crucial assumption: the expected utility of the consumers depends on the size of their insurance firm, which generates network externalities in this market. Thus, the choice of a contract results in a trade-off between the premium level and the probability of that premium being ex-post adjusted. The optimal contract offered by a mutual firm involves a systematic ex-post adjustment (negative or positive), while the contracts a company offers imply a fixed premium that is possibly negatively adjusted at the end of the contractual period. In an oligopoly game, we show that three types of configurations are possible at equilibrium: either one mutual firm or insurance company is active, or a mixed structure emerges in which two or more companies share the market with or without a mutual firm. The Geneva Papers on Risk and Insurance Theory (2002) 27, 115â141. doi:10.1023/A:1021948826240
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Bibliographic InfoPaper provided by THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise in its series THEMA Working Papers with number 2001-25.
Date of creation: 2001
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- Marie-C�cile Fagart & Nathalie Fombaron & Meglena Jeleva, 2002. "Risk Mutualization and Competition in Insurance Markets," The Geneva Risk and Insurance Review, Palgrave Macmillan, vol. 27(2), pages 115-141, December.
- Marie-Cécile Fagart & Nathalie Fombaron & Meglena Jeleva, 2001. "Risk Mutualization and Competition in Insurance Market," Working Papers 2001-24, Centre de Recherche en Economie et Statistique.
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- Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
- Georges Dionne & Nathalie Fombaron & Neil Doherty, 2012. "Adverse Selection in Insurance Contracting," Cahiers de recherche 1231, CIRPEE.
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