The risk-shifting behavior of insurers under different guarantee schemes
- Insurance guarantee schemes aim to protect policyholders from the costs of insurer insolvencies. However, guarantee schemes can also reduce insurers’ incentives to conduct appropriate risk management. We investigate stock insurers’ risk-shifting behavior for insurance guarantee schemes under the two different financing alternatives: a flat-rate premium assessment versus a risk-based premium assessment. We identify which guarantee scheme maximizes policyholders’ welfare, measured by their expected utility. We find that the risk-based insurance guarantee scheme can only mitigate the insurer’s risk-shifting behavior if a substantial premium loading is present. Furthermore, the risk-based guarantee scheme is superior for improving policyholders’ welfare compared to the flat-rate scheme when the mitigating effect occurs.
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| Author: | Ming DongGND, Helmut GründlGND, Sebastian SchlütterGND |
|---|---|
| URN: | urn:nbn:de:hebis:30:3-736718 |
| Series (Serial Number): | ICIR Working Paper Series (No. 12/12 [16.12.13]) |
| Publisher: | International Center for Insurance Regulation |
| Place of publication: | Frankfurt am Main |
| Document Type: | Working Paper |
| Language: | English |
| Year of Completion: | 2013 |
| Year of first Publication: | 2013 |
| Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
| Release Date: | 2024/03/28 |
| Tag: | consumer protection; insurance guarantee schemes; risk-shifting |
| Edition: | Version February 16, 2013 |
| Page Number: | 23 |
| HeBIS-PPN: | 516922629 |
| Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
| Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF) | |
| Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE) | |
| Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
| Sammlungen: | Universitätspublikationen |
| Licence (German): |  Deutsches Urheberrecht |
