The merits of pooling claims: Mutual vs. stock insurers

Item Type Conference or Workshop Item (Speech)
Abstract

This paper identifies combinations of premiums, equity capital contributions, default probabilities, and pool sizes, under which a risk-averse policyholder is indifferent between purchasing insurance coverage with a mutual or a shareholder insurance company. We analyze in a first step the combinations of premiums and equity contributions within a fixed pool size, such that a policyholder is indiferent to either of the two legal forms. In a second step, we include the restriction of a fixed default probability in both the mutual and shareholder insurance companies. A numerical illustration is provided; given a fixed default probability, a determined pool size and fair premiums (i.e., the premium equals the expected indemnity payments), a policyholder in the shareholder company experiences higher utility levels than a policyholder in a mutual insurance company. Hence, a risk-averse policyholder accepts an unfair premium in the shareholder company to obtain the same utility level provided by the mutual company.

Authors Schmeiser, Hato & Orozco-Garcia, Carolina
Language English
Subjects business studies
economics
HSG Classification contribution to scientific community
HSG Profile Area SoM - Business Innovation
Date 2020
Event Title World Risk and Insurance Economics Congress (WRIEC)
Event Location New York (Online)
Event Dates 3. - 7.08.2020
Depositing User M.A. HSG Jonas Raphael Jahnert
Date Deposited 27 Oct 2020 15:38
Last Modified 08 Mar 2021 01:24
URI: https://www.alexandria.unisg.ch/publications/261295

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Schmeiser, Hato & Orozco-Garcia, Carolina: The merits of pooling claims: Mutual vs. stock insurers. [Conference or Workshop Item]

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https://www.alexandria.unisg.ch/id/eprint/261295
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