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Quality, self-regulation, and competition: the case of insurance

Andersson, Fredrik LU and Skogh, Göran (2003) In Insurance, Mathematics & Economics 32(2). p.267-280
Abstract
In this paper, insurers' credibility problems explain contracting, co-operation, and regulation in the insurance industry. First, it is noted that cheating by policyholders may be eliminated if the insurer withholds compensation on the basis of detecting careless behaviour with high enough probability. Then, assuming that care taken is imperfectly observable and non-contractible, the problem that insurers may deceive policyholders is addressed. In a repeated game, insurers' building a reputation for being generous can sustain an efficient outcome. Finally, intra-industry co-operation is considered; it is shown that the industry's monitoring care and "fair" compensation, while sustaining monopolistic pricing, mitigates negative credibility... (More)
In this paper, insurers' credibility problems explain contracting, co-operation, and regulation in the insurance industry. First, it is noted that cheating by policyholders may be eliminated if the insurer withholds compensation on the basis of detecting careless behaviour with high enough probability. Then, assuming that care taken is imperfectly observable and non-contractible, the problem that insurers may deceive policyholders is addressed. In a repeated game, insurers' building a reputation for being generous can sustain an efficient outcome. Finally, intra-industry co-operation is considered; it is shown that the industry's monitoring care and "fair" compensation, while sustaining monopolistic pricing, mitigates negative credibility externalities. (C) 2003 Elsevier Science B.V. All rights reserved. (Less)
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author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
generosity, competition, credibility externalities, self-regulation
in
Insurance, Mathematics & Economics
volume
32
issue
2
pages
267 - 280
publisher
Elsevier
external identifiers
  • wos:000182467900006
  • scopus:0037461989
ISSN
1873-5959
DOI
10.1016/S0167-6687(03)00111-2
language
English
LU publication?
yes
id
a5024e45-91df-4959-9a15-436171d85f92 (old id 312760)
date added to LUP
2007-08-22 11:44:27
date last changed
2018-01-07 05:27:48
@article{a5024e45-91df-4959-9a15-436171d85f92,
  abstract     = {In this paper, insurers' credibility problems explain contracting, co-operation, and regulation in the insurance industry. First, it is noted that cheating by policyholders may be eliminated if the insurer withholds compensation on the basis of detecting careless behaviour with high enough probability. Then, assuming that care taken is imperfectly observable and non-contractible, the problem that insurers may deceive policyholders is addressed. In a repeated game, insurers' building a reputation for being generous can sustain an efficient outcome. Finally, intra-industry co-operation is considered; it is shown that the industry's monitoring care and "fair" compensation, while sustaining monopolistic pricing, mitigates negative credibility externalities. (C) 2003 Elsevier Science B.V. All rights reserved.},
  author       = {Andersson, Fredrik and Skogh, Göran},
  issn         = {1873-5959},
  keyword      = {generosity,competition,credibility externalities,self-regulation},
  language     = {eng},
  number       = {2},
  pages        = {267--280},
  publisher    = {Elsevier},
  series       = {Insurance, Mathematics & Economics},
  title        = {Quality, self-regulation, and competition: the case of insurance},
  url          = {http://dx.doi.org/10.1016/S0167-6687(03)00111-2},
  volume       = {32},
  year         = {2003},
}