Insurance loss coverage and social welfare

Hao, MingJie and Macdonald, Angus S. and Tapadar, Pradip and Thomas, R. Guy (2018) Insurance loss coverage and social welfare. Scandinavian Actuarial Journal, . ISSN 0346-1238. (doi:https://doi.org/10.1080/03461238.2018.1513865) (Full text available)

Abstract

Restrictions on insurance risk classification may induce adverse selection, which is usually perceived as a bad outcome, both for insurers and for society. However, a social benefit of modest adverse selection is that it can lead to an increase in `loss coverage', defined as expected losses compensated by insurance for the whole population. We reconcile the concept of loss coverage to a utilitarian concept of social welfare commonly found in economic literature on risk classification. 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: 20 Nov 2018 12:02 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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