IDEAS home Printed from https://ideas.repec.org/p/zbw/hzvwps/20.html
   My bibliography  Save this paper

The optimal pricing strategy for an insurer when risk preferences are stochastically distributed

Author

Listed:
  • Hofmann, Annette
  • Nell, Martin
  • Pohl, Philipp

Abstract

The present paper analyzes the demand for insurance when the insurer has incomplete information about types of potential customers. We assume that customers' risk preferences cannot be distinguished by the insurer. Therefore, the standard result in insurance economics that the insurer discriminates perfectly in prices cannot be applied. Instead, the present article examines the optimal pricing rule for an insurer faced with stochastic distribution of risk preferences. Within this general model framework, we show that an optimal strategy always exists. Both fixed and proportionate premium loadings (relative to expected loss) are considered.

Suggested Citation

  • Hofmann, Annette & Nell, Martin & Pohl, Philipp, 2007. "The optimal pricing strategy for an insurer when risk preferences are stochastically distributed," Working Papers on Risk and Insurance 20, University of Hamburg, Institute for Risk and Insurance.
    • Handle: RePEc:zbw:hzvwps:20
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/54204/1/680536671.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. MOSSIN, Jan, 1968. "Aspects of rational insurance purchasing," LIDAM Reprints CORE 23, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. Joseph E. Stiglitz, 1977. "Monopoly, Non-linear Pricing and Imperfect Information: The Insurance Market," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(3), pages 407-430.
    3. Ramsay, Colin M., 2005. "Pricing optional group term insurance: a new approach using reservation prices," Insurance: Mathematics and Economics, Elsevier, vol. 36(1), pages 37-55, February.
    4. Kliger, Doron & Levikson, Benny, 1998. "Pricing insurance contracts -- an economic viewpoint," Insurance: Mathematics and Economics, Elsevier, vol. 22(3), pages 243-249, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kolos Csaba 'Agoston & Veronika Varga, 2024. "Bertrand oligopoly in insurance markets with Value at Risk Constraints," Papers 2404.17915, arXiv.org.
    2. Giuseppe, DE FEO & Jean, HINDRIKS, 2005. "Efficiency of Competition in Insurance Markets with Adverse Selection," Discussion Papers (ECON - Département des Sciences Economiques) 2005042, Université catholique de Louvain, Département des Sciences Economiques.
    3. de Meza, David & Xie, Gang, 2014. "The deadweight gain of insurance taxation when risky activities are optional," Journal of Public Economics, Elsevier, vol. 115(C), pages 109-116.
    4. Dionne, Georges & Harrington, Scott, 2017. "Insurance and Insurance Markets," Working Papers 17-2, HEC Montreal, Canada Research Chair in Risk Management.
    5. Yann Braouezec, 2015. "Public versus Private Insurance System with (and without) Transaction Costs: Optimal Segmentation Policy of an Informed monopolistPublic versus Private Insurance System with (and without) Transaction ," Working Papers 2013-ECO-23, IESEG School of Management, revised May 2014.
    6. Ramsay, Colin M. & Oguledo, Victor I. & Pathak, Priya, 2013. "Pricing high-risk and low-risk insurance contracts with incomplete information and production costs," Insurance: Mathematics and Economics, Elsevier, vol. 52(3), pages 606-614.
    7. Ramsay, Colin M. & Oguledo, Victor I., 2012. "Insurance pricing with complete information, state-dependent utility, and production costs," Insurance: Mathematics and Economics, Elsevier, vol. 50(3), pages 462-469.
    8. Henri Loubergé, 1998. "Risk and Insurance Economics 25 Years After," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 23(4), pages 540-567, October.
    9. Alex Gershkov & Benny Moldovanu & Philipp Strack & Mengxi Zhang, 2023. "Optimal Insurance: Dual Utility, Random Losses and Adverse Selection," ECONtribute Discussion Papers Series 242, University of Bonn and University of Cologne, Germany.
    10. Sandroni, Alvaro & Squintani, Francesco, 2013. "Overconfidence and asymmetric information: The case of insurance," Journal of Economic Behavior & Organization, Elsevier, vol. 93(C), pages 149-165.
    11. Thomas Eichner & Andreas Wagener, 2002. "Increases in Risk and the Welfare State," CESifo Working Paper Series 685, CESifo.
    12. Giovanni Millo & Gaetano Carmeci, 2011. "Non-life insurance consumption in Italy: a sub-regional panel data analysis," Journal of Geographical Systems, Springer, vol. 13(3), pages 273-298, September.
    13. Boonen, Tim J. & Liu, Fangda, 2022. "Insurance with heterogeneous preferences," Journal of Mathematical Economics, Elsevier, vol. 102(C).
    14. Renaud Bourlès & Dominique Henriet, 2012. "Risk-sharing Contracts with Asymmetric Information," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 37(1), pages 27-56, March.
    15. Amarante, Massimiliano & Ghossoub, Mario & Phelps, Edmund, 2015. "Ambiguity on the insurer’s side: The demand for insurance," Journal of Mathematical Economics, Elsevier, vol. 58(C), pages 61-78.
    16. DE DONDER, Philippe & PESTIEAU, Pierre, 2011. "Private, social and self insurance for long-term care: A political economy analysis," LIDAM Discussion Papers CORE 2011053, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    17. Ronny Klein, 2004. "Ansparen von Selbstbeteiligung in der Krankenversicherung?," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 73(4), pages 510-521.
    18. Lakdawalla, Darius & Sood, Neeraj, 2013. "Health insurance as a two-part pricing contract," Journal of Public Economics, Elsevier, vol. 102(C), pages 1-12.
    19. Marc A. Ragin & Benjamin L. Collier & Johannes G. Jaspersen, 2021. "The effect of information disclosure on demand for high‐load insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 88(1), pages 161-193, March.
    20. Blomqvist, Ake, 1997. "Optimal non-linear health insurance," Journal of Health Economics, Elsevier, vol. 16(3), pages 303-321, June.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:hzvwps:20. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/fbhamde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.