Lecture 22 - Government Insurance

Lecture 22 - Government Insurance - Match Criteria with...

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Match Criteria with Problem(s) 1. Loss out of the insured’s control. 2. Loss observable and measurable. 3. Losses not highly correlated. 4. Probability distribution can be estimated. 5. Premium is economically attractive. 6. Consumers do not have hidden information. A. Lack of demand A. Adverse Selection A. Fraud A. Moral Hazard A. Catastrophe Losses A. Pricing Difficulties
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All types of insurance have some insurability issues Individual annuity insurance Long term care insurance Earthquake insurance Environmental pollution insurance Medical malpractice insurance Unemployment insurance Nuclear risk insurance Terrorism insurance Automobile liability insurance
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Private Market Solutions Minor problems of insurability can be dealt with in private markets In many cases private market “solutions” reduce the attractiveness of insurance or limit insurance coverage Insurance coverage limits or exclusions Selective underwriting Increased price of insurance
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Private Market Solutions Adverse Selection Selective underwriting Menu of insurance contracts Mutual insurers or alternative risk pooling arrangements Unobservable/Unmeasurable Loss Contractual exclusions Valued contracts
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Private Market Solutions Moral hazard Deductibles or copayments
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Lecture 22 - Government Insurance - Match Criteria with...

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