Risk Management and the Value of Symmetric Information in Insurance Markets

Michael Hoy ()

Economica, 1988, vol. 55, issue 219, pages 355-64

Abstract: The introduction of symmetric information that allows for the costless classification of consumers according to risk type induces insurance companies to charge each consumer a risk class specific rate, thus creating premium risk. If firms are risk averse or face a costly-to-maintain solvency constraint, then such information allows firms to organize their portfolios more efficiently and so lowers the average cost of insurance. An assessment of the impact of such information on social welfare involves trading off these beneficial efficiency effects against the adverse distributional consequences of premium risk. Copyright 1988 by The London School of Economics and Political Science.

Date: 1988
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