Exclusions and the Demand for Property Insurance
The paper examines property insurance contracts in which consumers choose the upper limit on coverage. Exclusions are of two types, and both reduce the demand for insurance of the included perils. A practical implication is that an insurer can raise the demand for fire insurance by offering an earthquake rider, and profit from the rider even when the premia are ceded in such a way that the rider does not raise profit directly. The results do not require assumptions about correlations between included and excluded losses, which is interesting because correlations are decisive in most of the other literature on background risk. The Geneva Papers on Risk and Insurance Theory (2000) 25, 131–139. doi:10.1023/A:1008710311509
(This abstract was borrowed from another version of this item.)
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