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Insurance pools for new and undiversifiable risk

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  • David Alary

    (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique)

  • Catherine Bobtcheff

    (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique)

  • Carole Haritchabalet

    (CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour)

Abstract

This paper discusses the decision of the European Commission not to renew the antitrust exemption for the setting up of syndicates in the insurance industry. Pools are constituted to provide insurance for undiversifiable and/or new risks for which insurers with private expertise are capacity constrained. Our objective is to study if such syndicates improve insurance supply. Organizing this supply amounts to sharing a common value divisible good between capacity constrained and privately informed agents with a reserve price. Pools turn out to operate as a uniform price auction with an "exit/re-entry" option that we compare to a discriminatory auction where no specific agreements are needed. Both auction formats lead to different coverage/premium tradeoffs. If at least one insurer provides an optimistic expertise, the pool offers both lower premiums and higher coverage. This result is reversed when all insurers are pessimistic about the risk. Static comparative results with respect to capacity constraints and reserve price are provided.

Suggested Citation

  • David Alary & Catherine Bobtcheff & Carole Haritchabalet, 2018. "Insurance pools for new and undiversifiable risk," Post-Print hal-02440928, HAL.
    • Handle: RePEc:hal:journl:hal-02440928
    Note: View the original document on HAL open archive server: https://univ-pau.hal.science/hal-02440928
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    References listed on IDEAS

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