Insurance pools for new and undiversifiable risk

David Alary, Catherine Bobtcheff and Carole Haritchabalet ()
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David Alary: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique
Carole Haritchabalet: CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour

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Abstract: This paper discusses the decision of the European Commission not to renew the antitrust exemption for the setting up of syndicates in the insurance industry. Pools are constituted to provide insurance for undiversifiable and/or new risks for which insurers with private expertise are capacity constrained. Our objective is to study if such syndicates improve insurance supply. Organizing this supply amounts to sharing a common value divisible good between capacity constrained and privately informed agents with a reserve price. Pools turn out to operate as a uniform price auction with an "exit/re-entry" option that we compare to a discriminatory auction where no specific agreements are needed. Both auction formats lead to different coverage/premium tradeoffs. If at least one insurer provides an optimistic expertise, the pool offers both lower premiums and higher coverage. This result is reversed when all insurers are pessimistic about the risk. Static comparative results with respect to capacity constraints and reserve price are provided.

Keywords: pool insurance; competition; Undiversifiable risk (search for similar items in EconPapers)
Date: 2018-01-11
Note: View the original document on HAL open archive server: https://univ-pau.hal.science/hal-02440928v1
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Published in Séminaire du CREM, Jan 2018, Rennes, France

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02440928

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