Thomas, R.G. (2007) Some novel perspectives on risk classification. Geneva papers on risk and insurance-issues and practice, 32 (1). pp. 105-132. ISSN 1018-5895 .
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This paper considers a number of novel perspectives on risk classification, primarily in the context of life and critical illness insurance. I suggest that the terminology of "adverse selection" is often misleading, because from a public policy viewpoint, adverse selection may not always be adverse. I suggest that public policymakers should consider the criterion of "loss coverage", and that in many markets a socially optimal level of adverse selection is that which maximises loss coverage. A review of empirical studies suggests that adverse selection is often difficult to observe in practice; this leads to the concept of propitious selection, and various psychological perspectives on risk classification. I suggest that competition between insurers in risk classification can sometimes be characterised as a malevolent invisible hand, and that public policy should direct competition towards areas that are more clearly beneficial to all insurance customers. I also consider the perspectives of risk classification as blame, the conflict between risk classification and human rights, and the fallacy of the one-shot gambler.
|Uncontrolled keywords:||adverse selection; propitious selection; loss coverage; competition; psychology; one-shot gambler|
|Subjects:||H Social Sciences > HG Finance|
|Divisions:||Faculties > Science Technology and Medical Studies > School of Mathematics Statistics and Actuarial Science|
|Depositing User:||Jane Griffiths|
|Date Deposited:||07 Jul 2008 10:29|
|Last Modified:||14 Jan 2010 14:29|
|Resource URI:||http://kar.kent.ac.uk/id/eprint/8122 (The current URI for this page, for reference purposes)|
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