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Risk Mutualization and Competition in Insurance Market

Author

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  • Marie-Cécile Fagart

    (Crest)

  • Nathalie Fombaron

    (Crest)

  • Meglena Jeleva

    (Crest)

Abstract

The aim of this paper is to analyze the impact of mutual firms on competition in the insurance market. We distinguish two actors in this market: mutual firms, which belong to their pooled members, and traditional companies, which belong to their shareholders. Our approach differs from the literature by one crucial assumption: the expected utility of the consumers depends on the size of their insurance firm, which generates network externalities in this market. Thus, the choice of a contract results in a trade-off between the premium level and the probability of that premium being ex-post adjusted. The optimal contract offered by a mutual firm involves a systematic ex-post adjustment (negative or positive), while the contracts a company offers imply a fixed premium that is possibly negatively adjusted at the end of the contractual period. In an oligopoly game, we show that three types of configurations are possible at equilibrium: either one mutual firm or insurance company is active, or a mixed structure emerges in which two or more companies share the market with or without a mutual firm. The Geneva Papers on Risk and Insurance Theory (2002) 27, 115–141. doi:10.1023/A:1021948826240
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Suggested Citation

  • Marie-Cécile Fagart & Nathalie Fombaron & Meglena Jeleva, 2001. "Risk Mutualization and Competition in Insurance Market," Working Papers 2001-24, Center for Research in Economics and Statistics.
    • Handle: RePEc:crs:wpaper:2001-24
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    Cited by:

    1. is not listed on IDEAS
    2. Georges Dionne & Scott Harrington, 2017. "Insurance and Insurance Markets," Working Papers 17-2, HEC Montreal, Canada Research Chair in Risk Management.
    3. David Alary & Catherine Bobtcheff & Carole Haritchabalet, 2018. "Insurance pools for new and undiversifiable risk," Post-Print hal-02440928, HAL.
    4. Georges Dionne & Nathalie Fombaron & Neil Doherty, 2012. "Adverse selection in insurance contracting," Working Papers 12-8, HEC Montreal, Canada Research Chair in Risk Management.
    5. Georges Dionne & Nathalie Fombaron & Wanda Mimra, 2025. "Adverse Selection in Insurance," Springer Books, in: Georges Dionne (ed.), Handbook of Insurance, edition 0, pages 165-221, Springer.
    6. Renaud Bourlès, 2006. "How Can Insurance Companies Compete With MutualInsurers? The Role of Commitment," Working Papers halshs-00410765, HAL.

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