Insurance risk pooling, loss coverage and social welfare: When is adverse selection not adverse?

Tapadar, Pradip (2019) Insurance risk pooling, loss coverage and social welfare: When is adverse selection not adverse? In: IFAM Seminars, University of Liverpool, 20 Mar 2019, Liverpool, UK. (Unpublished) (Full text available)

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Abstract

Restrictions on insurance risk classification may induce adverse selection, which is usually perceived as a bad outcome, both for insurers and for society. We suggest a counter-argument to this perception in circumstances where modest levels of adverse selection lead 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 under adverse selection more than offsets the fall in number of individuals insured. We also reconcile the concept of loss coverage to a utilitarian concept of social welfare commonly found in economic literature. 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: Conference or workshop item (Lecture)
Subjects: Q Science > QA Mathematics (inc Computing science)
Divisions: Faculties > Sciences > School of Mathematics Statistics and Actuarial Science
Faculties > Sciences > School of Mathematics Statistics and Actuarial Science > Actuarial Science
Depositing User: Pradip Tapadar
Date Deposited: 19 Mar 2019 16:04 UTC
Last Modified: 21 Mar 2019 10:36 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/73080 (The current URI for this page, for reference purposes)
Tapadar, Pradip: https://orcid.org/0000-0003-0435-0860
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