Financing Insurance

Adriano Rampini and S Viswanathan ()

No 12855, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Insurance has an intertemporal aspect as insurance premia have to be paid up front. We argue that the financing of insurance is key to understanding basic insurance patterns and insurers' balance sheets. Limited enforcement implies that insurance is globally monotone increasing in household net worth and income, incomplete, and precautionary. These results hold in economies with income risk, durable goods and collateral constraints, and durable goods price risk, under quite general conditions. In equilibrium, insurers are financial intermediaries with collateralized loans as assets and diversified portfolios of insurance claims as liabilities. Collateral scarcity lowers the interest rate, reduces insurance, and increases inequality.

Keywords: Household finance; Collateral; Insurance; Risk management; Financial constraints (search for similar items in EconPapers)
JEL-codes: D91 E21 G22 (search for similar items in EconPapers)
Date: 2018-04
New Economics Papers: this item is included in nep-ias, nep-mac and nep-rmg
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