Whoops! It Happened Again: Demand for Insurance That Covers Multiple Risks

Liang Hong, Harris Schlesinger and Boyi Zhuang ()
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Liang Hong: Department of Mathematical Sciences, The University of Texas at Dallas, Richardson, TX 75080, USA
Boyi Zhuang: Alabama Center for Insurance Information and Research, Culverhouse College of Business, University of Alabama, 1500 Greensboro Ave Suite 2, Box 870397, Tuscaloosa, AL 35487, USA

Risks, 2023, vol. 11, issue 4, 1-17

Abstract: This article studies insurance demand in a two-period framework in which an individual faces risks in both current and future periods. Models for insurance with and without the presence of endogenous saving are both discussed. In contrast to what most literature suggests, when decisions on insurance and saving are made separately, insurance alone does not always unambiguously reduce risk, and decision makers might demand more insurance when there is a positive loading on the premium than when the insurance price is actuarially fair. We compare the demand for insurance in our framework with that in a two-period model where risk is concentrated in the second period and derive the conditions under which these demands differ. We examine the effects of risk aversion and derive the conditions under which a more risk-averse individual demands more or less insurance.

Keywords: two-period model; insurance; multiple risks; riskiness (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:gam:jrisks:v:11:y:2023:i:4:p:73-:d:1119950

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