Trust and Insurance Contracts

Nicola Gennaioli, Rafael La Porta, Florencio Lopez- de-Silanes and Andrei Shleifer

The Review of Financial Studies, 2022, vol. 35, issue 12, 5287-5333

Abstract: We assemble homeowner insurance claims from 28 independently operated country subsidiaries of a multinational insurance firm. We propose a new insurance model, in which consumers can make invalid claims and firms can deny valid claims, as is common in the data. In the model, trust and honesty shape equilibrium insurance contracts, disputes, and claim payments, especially when disputes are too small for courts. We test the model by investigating claim incidence, dispute, rejection, and payment, as well as insurance costs and pricing across countries. The evidence is consistent with the centrality of trust for insurance markets, as our model predicts.Authors have furnished data/code, which are available on the Oxford University Press Web site next to the link to the final published paper online.

JEL-codes: D23 G22 L14 Z13 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (6)

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Working Paper: Trust and Insurance Contracts (2020)
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