IDEAS home Printed from https://ideas.repec.org/a/taf/sactxx/v2023y2023i8p834-852.html
   My bibliography  Save this article

Insurance pricing in an equilibrium model

Author

Listed:
  • Frank Y. Feng
  • Xudong Zeng
  • Guanxia Zhu

Abstract

We develop a dynamic equilibrium model of insurance pricing in a competitive market consisting of heterogeneous insurance companies. The insurers have different beliefs on expected loss rate of an underlying risk process and the belief divergences are stochastic. The insurers select optimal insurance market shares to maximize their individual utilities. The equilibrium insurance price is formulated when the insurance market is cleared. We provide a general equilibrium framework with a continuum of insurers in the market and then solve for the equilibrium insurance price explicitly in the case of N insurers. We find that the stochastic heterogeneity brings extra volatility to insurance price and makes it dynamic. The mean-reverting divergences of insurers may explain cycles of insurance business documented by empirical studies. Compared to the previous literature of optimal insurance, this paper introduces an asset pricing framework of general equilibrium to the research of insurance pricing.

Suggested Citation

  • Frank Y. Feng & Xudong Zeng & Guanxia Zhu, 2023. "Insurance pricing in an equilibrium model," Scandinavian Actuarial Journal, Taylor & Francis Journals, vol. 2023(8), pages 834-852, September.
    • Handle: RePEc:taf:sactxx:v:2023:y:2023:i:8:p:834-852
    DOI: 10.1080/03461238.2022.2161412
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/03461238.2022.2161412
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/03461238.2022.2161412?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
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    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:taf:sactxx:v:2023:y:2023:i:8:p:834-852. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/sact .

    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.