Reinstatement or Insurance Payment in Corporate Fire Insurance

Jean-Marc Bourgeon and Pierre Picard

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Abstract: This article characterizes the optimal corporate fire insurance contract when the insured firm has private information about the economic value of the damaged assets. It is shown that the indemnity should be lower when the firm receives insurance money than in case of reinstatement, but there should be partial coverage even when reinstatement is chosen. When a risk of arson exists, the insurer may only reimburse reinstatement costs. Finally, the optimal contractual arrangement specifies that, in order to discriminate among firms, the insurer may use a (randomly exercised) reinstatement option as a screening device.

Keywords: Assurance; Risque incendie; Theorie de l'information (search for similar items in EconPapers)
Date: 2000-12
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Citations: View citations in EconPapers (2)

Published in The Journal of Risk and Insurance, 2000, 67 (4), pp.507-526. ⟨10.2307/253848⟩

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Working Paper: Reinstatement or insurance payment in corporate fire insurance (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02968390

DOI: 10.2307/253848

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