On the design of optimal parametric insurance

Alexis Louaas and Pierre Picard
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Alexis Louaas: CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique

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Abstract: Under parametric insurance, the indemnity is a function of a publicly-observable parameter vector correlated with the loss incurred by the policyholder. The parameter vector yields a loss index, which is the best estimate of the loss, the basis risk being the random difference between the actual loss and the loss index. We show that the design of optimal parametric insurance depends on whether the parameter vector and the basis risk are independently distributed or not, and we analyze how it is affected by the attitude toward risk of the policyholder.

Keywords: insurance; parametric insurance; loss index; Risk aversion; prudence (search for similar items in EconPapers)
Date: 2024-03-15
Note: View the original document on HAL open archive server: https://hal.science/hal-04511811v1
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