Thomas, R. Guy (2009) Demand elasticity, risk classification and loss coverage: when can community rating work? ASTIN Bulletin, 39 (2). pp. 403-428. ISSN 0515-0361 . (doi:https://doi.org/10.2143/AST.39.2.2044641) (Full text available)
This paper investigates the effects of high or low fair-premium demand elasticity in an insurance market where risk classification is restricted. High fair-premium demand elasticity leads to a collapse in loss coverage, with an equilibrium premium close to the risk of the higher risk population. Low fair-premium demand elasticity leads to an equilibrium premium close to the risk of the lower risk population, and high loss coverage – possibly higher than under more complete risk classification. The elasticity parameters which are required to generate a collapse in coverage in the model in this paper appear higher than the values for demand elasticity which have been estimated in several empirical studies of various insurance markets. This offers a possible explanation of why some insurance markets appear to operate reasonably well under community rating, without the collapse in coverage which insurance folklore suggests.
|Subjects:||H Social Sciences > HG Finance|
|Divisions:||Faculties > Sciences > School of Mathematics Statistics and Actuarial Science > Actuarial Science|
|Depositing User:||R.G. Thomas|
|Date Deposited:||07 Jul 2012 13:04 UTC|
|Last Modified:||10 Jun 2014 08:44 UTC|
|Resource URI:||https://kar.kent.ac.uk/id/eprint/29802 (The current URI for this page, for reference purposes)|