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Insurer Ambiguity and Market Failure

In: Making Decisions About Liability And Insurance

Author

Listed:
  • Howard Kunreuther

    (University of Pennsylvania, The Wharton School)

  • Robin Hogarth

    (University of Chicago, Graduate School of Business)

  • Jacqueline Meszaros

    (Temple University, General and Strategic Management Department)

Abstract

A series of studies investigate the decision processes of actuaries, underwriters, and reinsurers in setting premiums for ambiguous and uncertain risks. Survey data on prices reveal that all three types of these insurance decision makers are risk averse and ambiguity averse. In addition, groups appear to be influenced in their premium-setting decisions by specific reference points such as expected loss and the concern with insolvency. This behavior is consistent with a growing analytical and empirical literature in economics and decision processes that investigates the role that uncertainty plays on managerial choices. Improved risk-assessment procedures and government involvement in providing protection against catastrophic losses may induce insurers to reduce premiums and broaden available coverage.

Suggested Citation

  • Howard Kunreuther & Robin Hogarth & Jacqueline Meszaros, 1993. "Insurer Ambiguity and Market Failure," Springer Books, in: Colin Camerer & Howard Kunreuther (ed.), Making Decisions About Liability And Insurance, pages 71-87, Springer.
    • Handle: RePEc:spr:sprchp:978-94-011-2192-7_5
    DOI: 10.1007/978-94-011-2192-7_5
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