Insurance loss coverage and social welfare

Hao, MingJie and Macdonald, Angus S. and Tapadar, Pradip and Thomas, R. Guy (2017) Insurance loss coverage and social welfare. Submitted, . (Submitted) (Full text available)

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Abstract

Restrictions on insurance risk classification may induce adverse selection, which is usually perceived to reduce efficiency. We suggest a counter-argument to this perception in circumstances where modest adverse selection leads to an increase in `loss coverage', defined as expected losses compensated by insurance for the whole population. This happens if the shift in coverage towards higher risks more than outweighs the fall in numbers insured. We also reconcile `loss coverage' and a utilitarian concept of social welfare. For iso-elastic insurance demand, ranking risk classification schemes by (observable) loss coverage always gives the same ordering as ranking by (unobservable) social welfare.

Item Type: Article
Uncontrolled keywords: Adverse selection, loss coverage; social welfare.
Subjects: Q Science > QA Mathematics (inc Computing science)
Divisions: Faculties > Sciences > School of Mathematics Statistics and Actuarial Science > Actuarial Science
Depositing User: Pradip Tapadar
Date Deposited: 18 Feb 2016 13:29 UTC
Last Modified: 06 Sep 2017 13:56 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/54235 (The current URI for this page, for reference purposes)
Tapadar, Pradip: https://orcid.org/0000-0003-0435-0860
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