Investing in your own and peers’ risks: the simple analytics of P2P insurance

Michel Denuit ()
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Michel Denuit: Université catholique de Louvain, LIDAM/ISBA, Belgium

No 2020026, LIDAM Reprints ISBA from Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA)

Abstract: This paper studies a peer-to-peer (P2P) insurance scheme where participants share the first layer of their respective losses while the higher layer is transferred to a (re-) insurer. The conditional mean risk sharing rule proposed by Denuit and Dhaene (Insur Math Econ 51:265–270, 2012) appears to be a very convenient way to distribute retained losses among participants, as shown by Denuit (ASTIN Bull 49:591– 617, 2019). The amount of contributions paid by participants is determined by splitting it into the price of the stop-loss protection limiting the community’s total payout and an appropriate provision for the coverage of the lower layer which is mutualized inside the P2P community. As an application, the paper considers the case of a P2P insurance scheme when losses are modeled by independent compound Poisson sums with integer-valued severities (resulting from discretization). Some extensions are also discussed.

Keywords: Conditional expectation; Risk pooling; Comonotonicity; Compound Poisson distributions; Panjer recursion (search for similar items in EconPapers)
Date: 2020-05-06
Note: In: European Actuarial Journal - Vol. 10, no.2, p. 335-359 (2020)
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Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:aiz:louvar:2020026

DOI: 10.1007/s13385-020-00238-x

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