On Compulsory Per-Claim Deductibles in Automobile Insurance

Chu-Shiu Li and Chwen-Chi Liu
Additional contact information
Chu-Shiu Li: Department of Economics, Feng Chia University, Taiwan, ROC, e-mail: csli@fcu.edu.tw
Chwen-Chi Liu: Department of Insurance, Feng Chia University, Taiwan, ROC

The Geneva Risk and Insurance Review, 2003, vol. 28, issue 1, 25-32

Abstract: The purposes of this paper are to analyze the theoretical characteristics of the compulsory deductible system and to verify the rationality of an increasing per-claim deductible in automobile insurance. We derive the optimal variable per-claim deductible by assuming the insurers are financially balanced and the expected utility of the insured is maximized in the absence of moral hazard. Our result suggests that a variable per-claim deductible increasing with the number of claims per year is not optimal. Instead, deductibles should be charged in a decreasing rate forming a second-best solution. The Geneva Papers on Risk and Insurance Theory (2003) 28, 25–32. doi:10.1023/A:1022191714312

Date: 2003
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.palgrave-journals.com/grir/journal/v28/n1/pdf/grir2003151a.pdf Link to full text PDF (application/pdf)
http://www.palgrave-journals.com/grir/journal/v28/n1/full/grir2003151a.html Link to full text HTML (text/html)
Access to full text is restricted to subscribers.

Related works:
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:28:y:2003:i:1:p:25-32

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 ().