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

Fredrik Andersson, Göran Skogh

Research output: Contribution to journalArticlepeer-review

3 Citations (SciVal)

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.
Original languageEnglish
Pages (from-to)267-280
JournalInsurance: Mathematics and Economics
Volume32
Issue number2
DOIs
Publication statusPublished - 2003

Subject classification (UKÄ)

  • Economics

Keywords

  • generosity
  • competition
  • credibility externalities
  • self-regulation

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