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Safety versus affordability as targets of insurance regulation in an opaque market: A welfare approach

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  • Stoyanova, Rayna
  • Schlütter, Sebastian
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    Abstract

    Insurance regulation is typically aimed at policyholder protection. In particular, regulators attempt to ensure the financial safety of insurance firms, for example, by means of capital regulation, and to enhance the affordability of insurance, for example, by means of price ceilings. However, these goals are in conflict. Therefore, we identify situations in which regulators should be more concerned with safety or, alternatively, affordability. Our model incorporates default-risk-sensitive insurance demand, capital-related frictional costs, and imperfect risk transparency for policyholders. --

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    Bibliographic Info

    Paper provided by International Center for Insurance Regulation (ICIR), Goethe University Frankfurt in its series ICIR Working Paper Series with number 10/12.

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    Date of creation: 2012
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    Handle: RePEc:zbw:icirwp:1012

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    Keywords: Insurance Regulation; Regulatory Targets; Welfare; Opaqueness;

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    1. Robert Klein & Richard Phillips & Wenyan Shiu, 2002. "The Capital Structure of Firms Subject to Price Regulation: Evidence from the Insurance Industry," Journal of Financial Services Research, Springer, vol. 21(1), pages 79-100, February.
    2. Ray Rees & Hugh Gravelle & Achim Wambach, 1999. "Regulation of Insurance Markets," The Geneva Risk and Insurance Review, Palgrave Macmillan, vol. 24(1), pages 55-68, June.
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