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Splitting Risks in Insurance Markets With Adverse Selection
Author(s) -
Picard Pierre
Publication year - 2020
Publication title -
journal of risk and insurance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.055
H-Index - 63
eISSN - 1539-6975
pISSN - 0022-4367
DOI - 10.1111/jori.12278
Subject(s) - deductible , adverse selection , actuarial science , context (archaeology) , pareto principle , business , selection (genetic algorithm) , risk analysis (engineering) , economics , operations management , computer science , paleontology , artificial intelligence , biology
Abstract We characterize the design of insurance schemes when policyholders face several insurable risks in a context of adverse selection. Splitting risks emerges as a feature of second‐best Pareto optimality. This may take the form of risk‐specific contracts, or of contracts where risks are bundled but subject to differential coverage rules, such as risk‐specific copayments combined with a deductible or a cap on coverage.