Insuring Non-verifiable Losses and the Role of Internediaries

Neil A. Doherty, Christian Laux and Alexander Muermann
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Neil A. Doherty: University of PA
Christian Laux: Vienna University of Economics and Business
Alexander Muermann: Vienna University of Economics and Business

Working Papers from University of Pennsylvania, Wharton School, Weiss Center

Abstract: We analyze optimal risk sharing arrangements when losses are observable by policyholders and insurers but not verifiable. The optimal contract to insure individual losses can be implemented through a standard insurance contract with a deductible where the policyholder bears all losses lower than the deductible and an upper limit that restricts the maximum payment to the policyholder. For a group of policyholders it is optimal to choose contracts with individual deductibles and a joint upper limit. Insurance brokers can play an important role in implementing these contracts.

JEL-codes: D86 G22 L14 (search for similar items in EconPapers)
Date: 2010-10
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:upafin:11-31

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