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One-sided commitment in dynamic insurance contracts: Evidence from private health insurance in Germany

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  • Annette Hofmann
  • Mark Browne

Abstract

This paper studies long-term private health insurance (PHI) in Germany. It describes the main actuarial principles of premium calculation and relates these to existing theory. In the German PHI policyholders do not commit to renewing their insurance contracts, but insurers commit to offering renewal at a premium rate that does not reflect revealed future information about the insured risk. We show that empirical results are consistent with theoretical predictions from one-sided commitment models: front-loading in premiums generates a lock-in of consumers, and more front-loading is generally associated with lower rates of lapse. Due to a lack of consumer commitment, dynamic information revelation about risk type implies that high-risk policyholders are more likely to retain their PHI contracts than are low-risk types. Copyright Springer Science+Business Media New York 2013

Suggested Citation

  • Annette Hofmann & Mark Browne, 2013. "One-sided commitment in dynamic insurance contracts: Evidence from private health insurance in Germany," Journal of Risk and Uncertainty, Springer, vol. 46(1), pages 81-112, February.
    • Handle: RePEc:kap:jrisku:v:46:y:2013:i:1:p:81-112
    DOI: 10.1007/s11166-012-9160-6
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    More about this item

    Keywords

    Private health insurance; One-sided commitment; Guaranteed renewable insurance; G22; I11; I18;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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