Some novel perspectives on risk classification

Thomas, R. Guy (2007) Some novel perspectives on risk classification. Geneva Papers on Risk and Insurance - Issues and Practice, 32 (1). pp. 105-132. ISSN 1018-5895. (The full text of this publication is not available from this repository)

The full text of this publication is not available from this repository. (Contact us about this Publication)
Official URL


This paper considers a number of novel perspectives on risk classification, primarily in the context of life and critical illness insurance. I suggest that the terminology of "adverse selection" is often misleading, because from a public policy viewpoint, adverse selection may not always be adverse. I suggest that public policymakers should consider the criterion of "loss coverage", and that in many markets a socially optimal level of adverse selection is that which maximises loss coverage. A review of empirical studies suggests that adverse selection is often difficult to observe in practice; this leads to the concept of propitious selection, and various psychological perspectives on risk classification. I suggest that competition between insurers in risk classification can sometimes be characterised as a malevolent invisible hand, and that public policy should direct competition towards areas that are more clearly beneficial to all insurance customers. I also consider the perspectives of risk classification as blame, the conflict between risk classification and human rights, and the fallacy of the one-shot gambler.

Item Type: Article
Uncontrolled keywords: adverse selection; propitious selection; loss coverage; competition; psychology; one-shot gambler
Subjects: H Social Sciences > HG Finance
Divisions: Faculties > Science Technology and Medical Studies > School of Mathematics Statistics and Actuarial Science
Depositing User: Jane Griffiths
Date Deposited: 07 Jul 2008 10:29
Last Modified: 24 Apr 2014 08:58
Resource URI: (The current URI for this page, for reference purposes)
  • Depositors only (login required):