The Dark Side of Insurance

Avraham Ronen () and Porat Ariel ()
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Avraham Ronen: Tel Aviv University Faculty of Law, Tel Aviv, Israel
Porat Ariel: Tel Aviv University Faculty of Law, Tel Aviv, Israel

Review of Law & Economics, 2023, vol. 19, issue 1, 13-45

Abstract: When insurance works properly it provides insureds with optimal incentives to prevent losses, alongside coverage for losses that could not be prevented efficiently. But insurance has an overlooked dark side to it as well. Insurers employ various tactics to shift losses to their insureds or to their victims in order to minimize their own costs instead of reducing their insureds’ losses. Worse, insurers might also act to increase or maintain long term risks, ensuring the future of the insurance business that can’t exist without risks. We focus on the incentives of insurers to engage in anti-competitive practices and trigger harmful behaviors of their insureds or third parties, in order to increase demand for insurance coverage. Policymakers should be aware and critical of insurers’ perverse incentives that counteract the interests of the insureds and society.

Keywords: insurance; regulation; risk (search for similar items in EconPapers)
JEL-codes: G22 G28 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1515/rle-2022-0054

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