Incorporating a “no claim bonus” in insurance agency contract

Sumit Sarkar and Sai Ranjani Bharathkumar

Managerial and Decision Economics, 2018, vol. 39, issue 6, 682-689

Abstract: A bonus received by an agent from an insurer when the insured does not make a claim is called a “no claim bonus” (NCB). An NCB rewards the agent's risk‐management (RM) effort that reduces the probability that the insured suffers a loss. This paper designs an incentive compatible contract that induces the agent to choose an RM effort. If the agent's RM effort cost is lower than a threshold, feasible ranges of NCB and premium values exist such that the insurer can offer an incentive compatible agency contract with an NCB that is acceptable to the agent.

Date: 2018
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https://doi.org/10.1002/mde.2959

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Persistent link: https://EconPapers.repec.org/RePEc:wly:mgtdec:v:39:y:2018:i:6:p:682-689

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