Optimal premium pricing in a competitive stochastic insurance market with incomplete information: A Bayesian game-theoretic approach

Fotios Mourdoukoutas, Tim J. Boonen, Bonsoo Koo and Athanasios A. Pantelous

Insurance: Mathematics and Economics, 2024, vol. 119, issue C, 32-47

Abstract: This paper examines a stochastic one-period insurance market with incomplete information. The aggregate amount of claims follows a compound Poisson distribution. Insurers are assumed to be exponential utility maximizers, with their degree of risk aversion forming their private information. A premium strategy is defined as a mapping between risk-aversion types and premium rates. The optimal premium strategies are denoted by the pure-strategy Bayesian Nash equilibrium, whose existence and uniqueness are demonstrated under specific conditions on the insurer-specific demand functions. Boundary and monotonicity properties for equilibrium premium strategies are derived.

Keywords: Competitive insurance markets; Incomplete information; Bayesian Nash equilibrium; Combined ratio (search for similar items in EconPapers)
JEL-codes: C11 C72 C73 G22 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:119:y:2024:i:c:p:32-47

DOI: 10.1016/j.insmatheco.2024.07.006

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