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An economic analysis of the property/casualty insurance market Kelly, Mary Virginia
Abstract
Three economic issues in property/casualty insurance are examined in this thesis. Chapter 2 explores the impact of supply side heterogeneity on the market equilibrium. Multiple period contracting and informational issues are examined in Chapters 3 and 4. Property/casualty insurance is marketed in two manners: through agency writers and direct writers. Direct writers can sell insurance at a lower cost than agency writers. By exploiting demand side characteristics, Chapter 2 extends the traditional literature by examining the behaviour of heterogeneous insurers within a framework that admits both direct and agency writers in equilibrium. Heterogeneous travel costs are used to support this equilibrium. A second model is developed in which claim frequency heterogeneity is introduced on the demand side. It is assumed that agency writers can better discern a consumer's risk type. Characteristics of equilibria under which direct and agency writers exist are derived. In Chapter 3, Rothschild and Stiglitz's (1976) single period insurance model is extended to multiple periods. In a multiple period framework, insurers offer a sequence of single period contracts in which future contracts are conditioned on past contract choices. For dynamic consistency, once low risks have revealed their type, future contracts must be contingent on this event. This contract structure is compared to both a sequence of one period pooling contracts and a sequence of one period separating contracts. Numerical examples illustrate the results. In Chapter 4, learning by insurers is examined in a model in which consumers possess search costs. The presence of search costs allows inefficient insurers to remain in the market, and allows lower cost firms to earn higher profit loadings each period. Insurers, who possess differing initial valuations of a consumer's loss propensity, update the contract offered each period based on a consumer's past accident history. In a multiple period setting, consumers search for new coverage and switch insurers when the price charged by their contracting insurer exceeds the price that they are willing to pay.
Item Metadata
Title |
An economic analysis of the property/casualty insurance market
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Creator | |
Publisher |
University of British Columbia
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Date Issued |
1998
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Description |
Three economic issues in property/casualty insurance are examined in this thesis.
Chapter 2 explores the impact of supply side heterogeneity on the market equilibrium.
Multiple period contracting and informational issues are examined in Chapters 3 and 4.
Property/casualty insurance is marketed in two manners: through agency writers and
direct writers. Direct writers can sell insurance at a lower cost than agency writers. By
exploiting demand side characteristics, Chapter 2 extends the traditional literature by
examining the behaviour of heterogeneous insurers within a framework that admits both
direct and agency writers in equilibrium. Heterogeneous travel costs are used to support
this equilibrium. A second model is developed in which claim frequency heterogeneity is
introduced on the demand side. It is assumed that agency writers can better discern a
consumer's risk type. Characteristics of equilibria under which direct and agency writers
exist are derived.
In Chapter 3, Rothschild and Stiglitz's (1976) single period insurance model is extended
to multiple periods. In a multiple period framework, insurers offer a sequence of single
period contracts in which future contracts are conditioned on past contract choices. For
dynamic consistency, once low risks have revealed their type, future contracts must be
contingent on this event. This contract structure is compared to both a sequence of one
period pooling contracts and a sequence of one period separating contracts. Numerical
examples illustrate the results. In Chapter 4, learning by insurers is examined in a model in which consumers possess
search costs. The presence of search costs allows inefficient insurers to remain in the
market, and allows lower cost firms to earn higher profit loadings each period. Insurers,
who possess differing initial valuations of a consumer's loss propensity, update the
contract offered each period based on a consumer's past accident history. In a multiple
period setting, consumers search for new coverage and switch insurers when the price
charged by their contracting insurer exceeds the price that they are willing to pay.
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Extent |
5424250 bytes
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Genre | |
Type | |
File Format |
application/pdf
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Language |
eng
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Date Available |
2009-06-19
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Provider |
Vancouver : University of British Columbia Library
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Rights |
For non-commercial purposes only, such as research, private study and education. Additional conditions apply, see Terms of Use https://open.library.ubc.ca/terms_of_use.
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DOI |
10.14288/1.0089134
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URI | |
Degree | |
Program | |
Affiliation | |
Degree Grantor |
University of British Columbia
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Graduation Date |
1998-11
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Campus | |
Scholarly Level |
Graduate
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Aggregated Source Repository |
DSpace
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Item Media
Item Citations and Data
Rights
For non-commercial purposes only, such as research, private study and education. Additional conditions apply, see Terms of Use https://open.library.ubc.ca/terms_of_use.