Exclusions and the Demand for Property Insurance

Rodney Garratt and John M. Marshall
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John M. Marshall: Department of Economics, University of California, Santa Barbara 93106, USA, e-mail: marshall@econ.ucsb.edu

The Geneva Risk and Insurance Review, 2000, vol. 25, issue 2, 139 pages

Abstract: The paper examines property insurance contracts in which consumers choose the upper limit on coverage. Exclusions are of two types, and both reduce the demand for insurance of the included perils. A practical implication is that an insurer can raise the demand for fire insurance by offering an earthquake rider, and profit from the rider even when the premia are ceded in such a way that the rider does not raise profit directly. The results do not require assumptions about correlations between included and excluded losses, which is interesting because correlations are decisive in most of the other literature on background risk. The Geneva Papers on Risk and Insurance Theory (2000) 25, 131–139. doi:10.1023/A:1008710311509

Date: 2000
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