Optimal Multi-Period Insurance Companies

Itzhak Venezia and Haim Levy

Rodney L. White Center for Financial Research Working Papers from Wharton School Rodney L. White Center for Financial Research

Abstract: In multi-period insurance contract, the premiums that the insured must pay increase whenever he files a claim. Hence in this case the buyer of insurance faces a problem which does not exist in one period contracts. Namely: he must decide for which damages he should file a claim and for which he should not, bearing in mind that whenever he makes a claim, his future rates will rise. We show that the results of Arrow [1963], [1974] and Mossin [1968] are valid for this case too. That is: optimal multi-period insurance contracts must provide the insured full insurance above a strictly positive deductible.

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