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Under What Conditions is an Insurance Guaranty Fund Beneficial for Policyholders?

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abstract In this article, we derive conditions in an imperfect market setting, under which the introduction of a self-supporting insurance guaranty fund im- proves the position of the policyholders. When a guaranty fund is advanta- geous given homogeneous firms in the market, all policyholders benefit from it to the same extent, if they have the same underlying risk preferences and are charged identical premiums. In a more realistic heterogeneous setting, the introduction of an insurance guaranty fund is in general no longer beneficial for all policyholders in the same manner. Hence, systematic wealth transfers take place between the policyholders of different insurance companies. As a possible solution, and in order to counteract this effect, we introduce a framework for utility-based fund charges.
   
type journal paper
   
keywords
   
language English
kind of paper journal article
date of appearance 9-2012
journal The Journal of Risk and Insurance
publisher Wiley (Oxford UK)
ISSN 0022-4367
ISSN (online) 1539-6975
DOI 10.1111/j.1539-6975.2011.01444.x
volume of journal 79
number of issue 3
page(s) 785-815
review double-blind review
   
profile area SoM - Responsible Corporate Competitiveness (RoCC)
citation Rymaszewski, P., Schmeiser, H., & Wagner, J. (2012). Under What Conditions is an Insurance Guaranty Fund Beneficial for Policyholders?. The Journal of Risk and Insurance, 79(3), 785-815, DOI:10.1111/j.1539-6975.2011.01444.x.