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Insuring non-verifiable losses

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  • Doherty, Neil A.
  • Laux, Christian
  • Muermann, Alexander

Abstract

Insurance contracts are often complex and difficult to verify outside the insurance relation. We show that standard one-period insurance policies with an upper limit and a deductible are the optimal incentive-compatible contracts in a competitive market with repeated interaction. Optimal group insurance policies involve a joint upper limit but individual deductibles and insurance brokers can play a role implementing such contracts for the group of clients. Our model provides new insights and predictions about the determinants of insurance.

Suggested Citation

  • Doherty, Neil A. & Laux, Christian & Muermann, Alexander, 2011. "Insuring non-verifiable losses," CFS Working Paper Series 2011/31, Center for Financial Studies (CFS).
    • Handle: RePEc:zbw:cfswop:201131
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    References listed on IDEAS

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    Cited by:

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    2. Dwight Jaffee & Johan Walden, 2014. "Optimal Insurance With Costly Internal Capital," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 17(2), pages 137-161, September.
    3. Andreas Richter & Thomas C. Wilson, 2020. "Covid-19: implications for insurer risk management and the insurability of pandemic risk," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 45(2), pages 171-199, September.

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    More about this item

    Keywords

    Deductible Insurance; Upper Limit; Implicit Insurance Contracts; Insurance Brokers;
    All these keywords.

    JEL classification:

    • D6 - Microeconomics - - Welfare Economics
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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