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Loss Coverage as a Public Policy Objective for Risk Classification Schemes

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  • R. Guy Thomas

Abstract

This article suggests that from a public policy perspective, some degree of adverse selection may be desirable in some insurance markets. The article suggests that a public policymaker should consider the criterion of “loss coverage,” and that in some markets a policymaker may wish to regulate risk classification with a view to increasing loss coverage. Either too much or too little risk classification may reduce loss coverage. The concept is explored by means of examples and formulaic and graphical interpretations. An application to the UK life insurance market is considered.

Suggested Citation

  • R. Guy Thomas, 2008. "Loss Coverage as a Public Policy Objective for Risk Classification Schemes," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 75(4), pages 997-1018, December.
    • Handle: RePEc:bla:jrinsu:v:75:y:2008:i:4:p:997-1018
    DOI: 10.1111/j.1539-6975.2008.00294.x
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    References listed on IDEAS

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    10. Daykin, C. D. & Akers, D. A. & Macdonald, A. S. & McGleenan, T. & Paul, D. & Turvey, P. J., 2003. "Genetics and Insurance– Some Social Policy Issues," British Actuarial Journal, Cambridge University Press, vol. 9(4), pages 787-830, October.
    11. Georges Dionne & Christian Gourieroux & Charles Vanasse, 2001. "Testing for Evidence of Adverse Selection in the Automobile Insurance Market: A Comment," Journal of Political Economy, University of Chicago Press, vol. 109(2), pages 444-473, April.
    12. Mattias K. Polborn & Michael Hoy & Asha Sadanand, 2006. "Advantageous Effects of Regulatory Adverse Selection in the Life Insurance Market," Economic Journal, Royal Economic Society, vol. 116(508), pages 327-354, January.
    13. Amy Finkelstein & Kathleen McGarry, 2006. "Multiple Dimensions of Private Information: Evidence from the Long-Term Care Insurance Market," American Economic Review, American Economic Association, vol. 96(4), pages 938-958, September.
    14. Cardon, James H & Hendel, Igal, 2001. "Asymmetric Information in Health Insurance: Evidence from the National Medical Expenditure Survey," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 408-427, Autumn.
    15. Michael Hoy, 2006. "Risk Classification and Social Welfare*," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 31(2), pages 245-269, April.
    16. Mark V. Pauly & Kate H. Withers & Krupa Subramanian-Viswana & Jean Lemaire & John C. Hershey, 2003. "Price Elasticity of Demand for Term Life Insurance and Adverse Selection," NBER Working Papers 9925, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Maureen Durnin & Michael Hoy & Michael Ruse, 2012. "Genetic Testing and Insurance: The Complexity of Adverse Selection," Working Papers 1208, University of Guelph, Department of Economics and Finance.
    2. Georges Dionne & Casey Rothschild, 2014. "Economic Effects of Risk Classification Bans," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 39(2), pages 184-221, September.
    3. Hao, MingJie & Macdonald, Angus S. & Tapadar, Pradip & Thomas, R. Guy, 2018. "Insurance loss coverage and demand elasticities," Insurance: Mathematics and Economics, Elsevier, vol. 79(C), pages 15-25.
    4. Chatterjee, Indradeb & Hao, MingJie & Tapadar, Pradip & Thomas, R. Guy, 2024. "Can price collars increase insurance loss coverage?," Insurance: Mathematics and Economics, Elsevier, vol. 116(C), pages 74-94.
    5. Constantin ANGHELACHE & Alexandru MANOLE & Madalina-Gabriela ANGHEL & Andreea – Ioana MARINESCU, 2017. "Theoretical Procedures for International Comparison of Macroeconomic Result Indicators," Romanian Statistical Review Supplement, Romanian Statistical Review, vol. 65(8), pages 58-66, August.
    6. Liselotte Maichel-Guggemoos & Joël Wagner, 2018. "Profitability and Growth in Motor Insurance Business: Empirical Evidence from Germany," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 43(1), pages 126-157, January.
    7. Turo-Kimmo Lehtonen & Jyri Liukko, 2011. "The Forms and Limits of Insurance Solidarity," Journal of Business Ethics, Springer, vol. 103(1), pages 33-44, April.
    8. Levon Barseghyan & Francesca Molinari & Darcy Steeg Morris & Joshua C. Teitelbaum, 2020. "The Cost of Legal Restrictions on Experience Rating," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 17(1), pages 38-70, March.
    9. R. Guy Thomas, 2018. "Why Insurers Are Wrong about Adverse Selection," Laws, MDPI, vol. 7(2), pages 1-8, April.
    10. Michael McCrea & Mark Farrell, 2018. "A Conceptual Model for Pricing Health and Life Insurance Using Wearable Technology," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 21(3), pages 389-411, December.

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