IDEAS home Printed from https://ideas.repec.org/a/bla/jrinsu/v75y2008i4p997-1018.html
   My bibliography  Save this article

Loss Coverage as a Public Policy Objective for Risk Classification Schemes

Author

Listed:
  • R. Guy Thomas

Abstract

This article suggests that from a public policy perspective, some degree of adverse selection may be desirable in some insurance markets. The article suggests that a public policymaker should consider the criterion of “loss coverage,” and that in some markets a policymaker may wish to regulate risk classification with a view to increasing loss coverage. Either too much or too little risk classification may reduce loss coverage. The concept is explored by means of examples and formulaic and graphical interpretations. An application to the UK life insurance market is considered.

Suggested Citation

  • R. Guy Thomas, 2008. "Loss Coverage as a Public Policy Objective for Risk Classification Schemes," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 75(4), pages 997-1018, December.
    • Handle: RePEc:bla:jrinsu:v:75:y:2008:i:4:p:997-1018
    DOI: 10.1111/j.1539-6975.2008.00294.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1539-6975.2008.00294.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1539-6975.2008.00294.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Schwarze, Reimund & Wein, Thomas, 2005. "Is the market classification of risk always efficient? Evidence from German third party motor insurance," German Risk and Insurance Review (GRIR), University of Cologne, Department of Risk Management and Insurance, vol. 1(4), pages 173-202.
    2. Amy Finkelstein & James Poterba, 2004. "Adverse Selection in Insurance Markets: Policyholder Evidence from the U.K. Annuity Market," Journal of Political Economy, University of Chicago Press, vol. 112(1), pages 183-208, February.
    3. Hoy, Michael & Polborn, Mattias, 2000. "The value of genetic information in the life insurance market," Journal of Public Economics, Elsevier, vol. 78(3), pages 235-252, November.
    4. B. Douglas Bernheim & Lorenzo Forni & Jagadeesh Gokhale & Laurence J. Kotlikoff, 2003. "The Mismatch Between Life Insurance Holdings and Financial Vulnerabilities: Evidence from the Health and Retirement Study," American Economic Review, American Economic Association, vol. 93(1), pages 354-365, March.
    5. Tomas Philipson & John Cawley, 1999. "An Empirical Examination of Information Barriers to Trade in Insurance," American Economic Review, American Economic Association, vol. 89(4), pages 827-846, September.
    6. R Guy Thomas, 2007. "Some Novel Perspectives on Risk Classification," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 32(1), pages 105-132, January.
    7. Pierre-Andre Chiappori & Bernard Salanie, 2000. "Testing for Asymmetric Information in Insurance Markets," Journal of Political Economy, University of Chicago Press, vol. 108(1), pages 56-78, February.
    8. Auerbach, Alan J. & Kotlikoff, Laurence J., 1991. "The adequacy of life insurance purchases," Journal of Financial Intermediation, Elsevier, vol. 1(3), pages 215-241, June.
    9. Jong, Piet De & Ferris, Shauna, 2006. "Adverse Selection Spirals," ASTIN Bulletin, Cambridge University Press, vol. 36(2), pages 589-628, November.
    10. Daykin, C. D. & Akers, D. A. & Macdonald, A. S. & McGleenan, T. & Paul, D. & Turvey, P. J., 2003. "Genetics and Insurance– Some Social Policy Issues," British Actuarial Journal, Cambridge University Press, vol. 9(4), pages 787-830, October.
    11. Georges Dionne & Christian Gourieroux & Charles Vanasse, 2001. "Testing for Evidence of Adverse Selection in the Automobile Insurance Market: A Comment," Journal of Political Economy, University of Chicago Press, vol. 109(2), pages 444-473, April.
    12. Mattias K. Polborn & Michael Hoy & Asha Sadanand, 2006. "Advantageous Effects of Regulatory Adverse Selection in the Life Insurance Market," Economic Journal, Royal Economic Society, vol. 116(508), pages 327-354, January.
    13. Amy Finkelstein & Kathleen McGarry, 2006. "Multiple Dimensions of Private Information: Evidence from the Long-Term Care Insurance Market," American Economic Review, American Economic Association, vol. 96(4), pages 938-958, September.
    14. Cardon, James H & Hendel, Igal, 2001. "Asymmetric Information in Health Insurance: Evidence from the National Medical Expenditure Survey," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 408-427, Autumn.
    15. Michael Hoy, 2006. "Risk Classification and Social Welfare*," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 31(2), pages 245-269, April.
    16. Mark V. Pauly & Kate H. Withers & Krupa Subramanian-Viswana & Jean Lemaire & John C. Hershey, 2003. "Price Elasticity of Demand for Term Life Insurance and Adverse Selection," NBER Working Papers 9925, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Levon Barseghyan & Francesca Molinari & Darcy Steeg Morris & Joshua C. Teitelbaum, 2020. "The Cost of Legal Restrictions on Experience Rating," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 17(1), pages 38-70, March.
    2. Maureen Durnin & Michael Hoy & Michael Ruse, 2012. "Genetic Testing and Insurance: The Complexity of Adverse Selection," Working Papers 1208, University of Guelph, Department of Economics and Finance.
    3. R. Guy Thomas, 2018. "Why Insurers Are Wrong about Adverse Selection," Laws, MDPI, vol. 7(2), pages 1-8, April.
    4. Georges Dionne & Casey Rothschild, 2014. "Economic Effects of Risk Classification Bans," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 39(2), pages 184-221, September.
    5. Liselotte Maichel-Guggemoos & Joël Wagner, 2018. "Profitability and Growth in Motor Insurance Business: Empirical Evidence from Germany," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 43(1), pages 126-157, January.
    6. Turo-Kimmo Lehtonen & Jyri Liukko, 2011. "The Forms and Limits of Insurance Solidarity," Journal of Business Ethics, Springer, vol. 103(1), pages 33-44, April.
    7. Michael McCrea & Mark Farrell, 2018. "A Conceptual Model for Pricing Health and Life Insurance Using Wearable Technology," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 21(3), pages 389-411, December.
    8. Hao, MingJie & Macdonald, Angus S. & Tapadar, Pradip & Thomas, R. Guy, 2018. "Insurance loss coverage and demand elasticities," Insurance: Mathematics and Economics, Elsevier, vol. 79(C), pages 15-25.
    9. Constantin ANGHELACHE & Alexandru MANOLE & Madalina-Gabriela ANGHEL & Andreea – Ioana MARINESCU, 2017. "Theoretical Procedures for International Comparison of Macroeconomic Result Indicators," Romanian Statistical Review Supplement, Romanian Statistical Review, vol. 65(8), pages 58-66, August.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dardanoni, V & Li Donni, P, 2008. "Testing For Asymmetric Information In Insurance Markets With Unobservable Types," Health, Econometrics and Data Group (HEDG) Working Papers 08/26, HEDG, c/o Department of Economics, University of York.
    2. Alma Cohen & Peter Siegelman, 2010. "Testing for Adverse Selection in Insurance Markets," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(1), pages 39-84, March.
    3. Hanming Fang & Michael P. Keane & Dan Silverman, 2008. "Sources of Advantageous Selection: Evidence from the Medigap Insurance Market," Journal of Political Economy, University of Chicago Press, vol. 116(2), pages 303-350, April.
    4. Huang, Rachel J. & Jeng, Vivian & Wang, Cheng-Wei & Yue, Jack C., 2021. "Does size and book-to-market contain intangible information about managerial incentives? Learning from corporate D&O insurance purchase," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    5. Liran Einav & Amy Finkelstein & Jonathan Levin, 2010. "Beyond Testing: Empirical Models of Insurance Markets," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 311-336, September.
    6. Daniel Bauer & Jochen Russ & Nan Zhu, 2020. "Asymmetric information in secondary insurance markets: Evidence from the life settlements market," Quantitative Economics, Econometric Society, vol. 11(3), pages 1143-1175, July.
    7. Timothy F. Harris & Aaron Yelowitz & Jeffery Talbert & Alison Davis, 2023. "Adverse selection in the group life insurance market," Economic Inquiry, Western Economic Association International, vol. 61(4), pages 911-941, October.
    8. Peter Arcidiacono & Esteban M. Aucejo & Hanming Fang & Kenneth I. Spenner, 2011. "Does affirmative action lead to mismatch? A new test and evidence," Quantitative Economics, Econometric Society, vol. 2(3), pages 303-333, November.
    9. Georges Dionne & Casey G. Rothschild, 2011. "Risk Classification in Insurance Contracting," Cahiers de recherche 1137, CIRPEE.
    10. Hanming Fang & Zenan Wu, 2018. "Multidimensional private information, market structure, and insurance markets," RAND Journal of Economics, RAND Corporation, vol. 49(3), pages 751-787, September.
    11. Alois Geyer & Daniela Kremslehner & Alexander Muermann, 2020. "Asymmetric Information in Automobile Insurance: Evidence From Driving Behavior," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 87(4), pages 969-995, December.
    12. Karl Ove Aarbu, 2017. "Asymmetric Information in the Home Insurance Market," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 84(1), pages 35-72, March.
    13. David M. Cutler & Amy Finkelstein & Kathleen McGarry, 2008. "Preference Heterogeneity and Insurance Markets: Explaining a Puzzle of Insurance," American Economic Review, American Economic Association, vol. 98(2), pages 157-162, May.
    14. Pierre-André Chiappori & Bernard Salanié, 2002. "Testing Contract Theory : A Survey of Some Recent Work," Working Papers 2002-11, Center for Research in Economics and Statistics.
    15. Jennifer L. Wang & Ching‐Fan Chung & Larry Y. Tzeng, 2008. "An Empirical Analysis of the Effects of Increasing Deductibles on Moral Hazard," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 75(3), pages 551-566, September.
    16. Michael Hoy & Michael Ruse, 2005. "Regulating Genetic Information in Insurance Markets," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 8(2), pages 211-237, September.
    17. Andrea Attar & Thomas Mariotti & François Salanié, 2022. "Regulating Insurance Markets: Multiple Contracting And Adverse Selection," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(3), pages 981-1020, August.
    18. Georges Dionne & Casey Rothschild, 2014. "Economic Effects of Risk Classification Bans," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 39(2), pages 184-221, September.
    19. Tomas J. Philipson & George Zanjani, 2013. "Economic Analysis of Risk and Uncertainty induced by Health Shocks: A Review and Extension," NBER Working Papers 19005, National Bureau of Economic Research, Inc.
    20. Amy Finkelstein & James Poterba, 2014. "Testing for Asymmetric Information Using “Unused Observables” in Insurance Markets: Evidence from the U.K. Annuity Market," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 81(4), pages 709-734, December.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jrinsu:v:75:y:2008:i:4:p:997-1018. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/ariaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.