EconPapers    
Economics at your fingertips  
 

Organizing insurance supply for new and undiversifiable risks

David Alary, Catherine Bobtcheff () and Carole Haritchabalet ()
Additional contact information
David Alary: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Catherine Bobtcheff: PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Carole Haritchabalet: TREE - Transitions Energétiques et Environnementales - UPPA - Université de Pau et des Pays de l'Adour - CNRS - Centre National de la Recherche Scientifique

Post-Print from HAL

Abstract: This paper explores how insurance companies can coordinate to extend their joint capacity for the coverage of new and undiversifiable risks. The undiversifiable nature of such risks causes a shortage of insurance capacity and their limited knowledge makes learning and information sharing necessary. In practice, organizing such insurance supply amounts to sharing a common value divisible good between capacity constrained and privately informed insurers with a reserve price. Widely used ad-hoc co-insurance agreements out to operate as a uniform price auction with an "exit/re-entry" option. We compare it to a discriminatory auction, another auction present in the insurance industry. Both auction formats lead to different coverage/premium tradeoffs. If at least one insurer provides an optimistic expertise about the risk, ad-hoc co-insurance agreements offer higher coverage. This result is reversed when all insurers are pessimistic about the risk. Static comparative results with respect to the severity of the capacity constraints and the reserve price are provided. In the case of completely new risks, a regulator aiming at maximizing the expected coverage should promote ad-hoc co-insurance agreements when the reserve price is low enough or when competition is high enough.

Keywords: Coinsurance; Common Value Divisible Good Auctions; Competition; Reserve Price; Undiversifiable and New Risk (search for similar items in EconPapers)
Date: 2022-09
References: Add references at CitEc
Citations:

Published in Seminar of the European Group of Risk and Insurance Economists, Sep 2022, Vienna, Austria

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04119477

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().

 
Page updated 2025-03-19
Handle: RePEc:hal:journl:hal-04119477