One-sided commitment in dynamic insurance contracts: Evidence from private health insurance in Germany

Annette Hofmann () and Mark Browne ()

Journal of Risk and Uncertainty, 2013, vol. 46, issue 1, 112 pages

Abstract: This paper studies long-term private health insurance (PHI) in Germany. It describes the main actuarial principles of premium calculation and relates these to existing theory. In the German PHI policyholders do not commit to renewing their insurance contracts, but insurers commit to offering renewal at a premium rate that does not reflect revealed future information about the insured risk. We show that empirical results are consistent with theoretical predictions from one-sided commitment models: front-loading in premiums generates a lock-in of consumers, and more front-loading is generally associated with lower rates of lapse. Due to a lack of consumer commitment, dynamic information revelation about risk type implies that high-risk policyholders are more likely to retain their PHI contracts than are low-risk types. Copyright Springer Science+Business Media New York 2013

Keywords: Private health insurance; One-sided commitment; Guaranteed renewable insurance; G22; I11; I18 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (33)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:jrisku:v:46:y:2013:i:1:p:81-112

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DOI: 10.1007/s11166-012-9160-6

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