Some novel perspectives on risk classification

Thomas, R. Guy (2007) Some novel perspectives on risk classification. Geneva Papers on Risk and Insurance - Issues and Practice, 32 (1). pp. 105-132. ISSN 1018-5895. (The full text of this publication is not available from this repository)

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Official URL
http://dx.doi.org/10.1057/palgrave.gpp.2510118

Abstract

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.

Item Type: Article
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: 24 Apr 2014 08:58
Resource URI: http://kar.kent.ac.uk/id/eprint/8122 (The current URI for this page, for reference purposes)
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