Risk Mutualization and Competition in Insurance Markets

Marie-Cecile Fagart, Nathalie Fombaron and Meglena Jeleva ()
Additional contact information
Nathalie Fombaron: Thema Université de Paris X-Nanterre, 200 avenue de la République, 32100 Nanterre, France, e-mail: nathalie.fombaron@u-paris10.fr

The Geneva Risk and Insurance Review, 2002, vol. 27, issue 2, 115-141

Abstract: The aim of this paper is to analyze the impact of mutual firms on competition in the insurance market. We distinguish two actors in this market: mutual firms, which belong to their pooled members, and traditional companies, which belong to their shareholders. Our approach differs from the literature by one crucial assumption: the expected utility of the consumers depends on the size of their insurance firm, which generates network externalities in this market. Thus, the choice of a contract results in a trade-off between the premium level and the probability of that premium being ex-post adjusted. The optimal contract offered by a mutual firm involves a systematic ex-post adjustment (negative or positive), while the contracts a company offers imply a fixed premium that is possibly negatively adjusted at the end of the contractual period. In an oligopoly game, we show that three types of configurations are possible at equilibrium: either one mutual firm or insurance company is active, or a mixed structure emerges in which two or more companies share the market with or without a mutual firm. The Geneva Papers on Risk and Insurance Theory (2002) 27, 115–141. doi:10.1023/A:1021948826240

Date: 2002
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.palgrave-journals.com/grir/journal/v27/n2/pdf/grir2002147a.pdf Link to full text PDF (application/pdf)
http://www.palgrave-journals.com/grir/journal/v27/n2/full/grir2002147a.html Link to full text HTML (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Risk Mutualization and Competition in Insurance Market (2001)
Working Paper: Risk Mutualization and Competition in Insurance Market (2001)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:genrir:v:27:y:2002:i:2:p:115-141

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10713

Access Statistics for this article

The Geneva Risk and Insurance Review is currently edited by Michael Hoy and Nicolas Treich

More articles in The Geneva Risk and Insurance Review from Palgrave Macmillan, International Association for the Study of Insurance Economics (The Geneva Association) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().