Date of this Version
Journal of Risk and Uncertainty
This paper examines the demand and supply of annual and multi-year insurance contracts with respect to protection against a catastrophic risk in a competitive market. Insurers who offer annual policies can cancel policies at the end of each year and change the premium in the following year. Multi-year insurance has a fixed annual price for each year and no cancellations are permitted at the end of any given year. Homeowners are identical with respect to their exposure to the hazard. Each homeowner determines whether or not to purchase an annual or multi-year contract so as to maximize her expected utility. The competitive equilibrium consists of a set of prices where homeowners who are not very risk averse decide to be uninsured. Other individuals demand either single-year or multi-year policies depending on their degree of risk aversion and the premiums charged by insurers for each type of policy.
The final publication is available at Springer via http://dx.doi.org/10.1007/s11166-012-9148-2
insurance, multi-year policies, catastrophic risk, risk aversion
Kleindorfer, P. R., Kunreuther, H., & Ou-Yang, C. (2012). Single-Year and Multi-year Insurance Policies in a Competitive Market. Journal of Risk and Uncertainty, 45 (1), 51-78. http://dx.doi.org/10.1007/s11166-012-9148-2
Date Posted: 27 November 2017
This document has been peer reviewed.