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Dynamic Prevention in Short Term Insurance Contracts

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  • M. Martin Boyer
  • Karine Gobert

Abstract

This paper looks at the dynamic properties of insurance contracts when insurers have better technology at preventing catastrophic losses than the insured. The prevention technology is owned by the insurers and is permanent. If long-term contracts are not possible, the insured is faced with a commitment problem since he may want to renegotiate the contract or change insurer after his initial insurer has invested in prevention. Because of this hold-up problem, we find that the investment in prevention is delayed. Le but de cet article est d'étudier les propriétés dynamiques des contrats d'assurance lorsque les assureurs détiennent une meilleure technologie de prévention des catastrophes que les assurés. Cette technologie est permanente au sens où elle ne se déprécie pas. Si les contrats de long terme ne sont pas possibles, les assurés font face à un problème d'engagement puisqu'ils voudraient renégocier le contrat ou changer d'assureur après que l'assureur initial a investi le montant optimal en prévention. À cause de ce problème de hold-up, nous montrons que l'investissement en prévention est retardé, et ce même si l'assuré demeure avec le même assureur sur tout l'horizon de fonctionnement. Nous montrons également que la dynamique des primes d'assurance diffère d'une suite de primes actuarielles.

Suggested Citation

  • M. Martin Boyer & Karine Gobert, 2001. "Dynamic Prevention in Short Term Insurance Contracts," CIRANO Working Papers 2001s-69, CIRANO.
    • Handle: RePEc:cir:cirwor:2001s-69
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