Insurance loss coverage and social welfare

Hao, MingJie and Macdonald, Angus S. and Tapadar, Pradip and Thomas, R. Guy (2016) Insurance loss coverage and social welfare. Working paper. Unknown (Unpublished) (Full text available)

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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 the expected losses compensated by insurance for the whole population. This happens if the shift in coverage towards higher risks under adverse selection more than outweighs the fall in number of individuals insured. We also reconcile the concept of `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) utilitarian social welfare.

Item Type: Monograph (Working paper)
Uncontrolled keywords: 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: 13 Jan 2017 10:42 UTC
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