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2021 | Buch

Insurance Economics

verfasst von: Prof. Dr. Peter Zweifel, Prof. Dr. Roland Eisen, Dr. David L. Eckles

Verlag: Springer International Publishing

Buchreihe : Classroom Companion: Economics

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SUCHEN

Über dieses Buch

Insurance Economics brings together the economic analysis of decision making under risk, risk management and demand for insurance among individuals and corporations, objectives pursued and management tools used by insurance companies, the regulation of insurance, and the division of labor between private and social insurance.

Appropriate both for advanced undergraduate and graduate students of economics, management, and finance, this text provides the background required to understand current research. Predictions derived from theoretical arguments are not merely stated, but also related to empirical evidence. Throughout the book, conclusions summarize key results, helping readers to check their knowledge and comprehension. Issues discussed include paradoxes in decision making under risk and attempts at their resolution, moral hazard and adverse selection including the possibility of a “death spiral”, and future challenges to both private and social insurance such as globalization and the availability of genetic information.

This second edition has been extensively revised. Most importantly, substantial content has been added to represent the evolution of risk-related research. A new chapter, Insurance Demand II: Nontraditional Approaches, provides a timely addition in view of recent developments in risk theory and insurance. Previous discussions of Enterprise Risk Management, long-term care insurance, adverse selection, and moral hazard have all been updated. In an effort to expand the global reach of the text, evidence and research from the U.S. and China have also been added.

Inhaltsverzeichnis

Frontmatter
Chapter 1. Introduction: Insurance and Its Economic Role
Abstract
Uncertainty is at the heart of insurance. This is already manifested in our limited knowledge about (observable) past events. In the “real” world, all our activities depend on uncertain and unknown circumstances beyond the control of a single individual. Unambiguous, deterministic cause–effect relationships are replaced by ambiguity in the perception of the economic environment. With respect to the future, uncertainty looms even larger. However, it is possible to make forecasts about future events even with incomplete knowledge of past events.
Peter Zweifel, Roland Eisen, David L. Eckles
Chapter 2. Risk: Measurement, Perception, and Management
Abstract
In ordinary language, “risk” is mainly used in conjunction with “chance”. In Chinese language, “risk” indeed has two characters, one for risk proper (sometimes called negative consequences) and the other for chance. In insurance economics, however, the word has a specific meaning to be defined in Sect. 2.1. Also, the statistical measurement of risk turns out to be an endeavor fraught with difficulties.
Peter Zweifel, Roland Eisen, David L. Eckles
Chapter 3. Insurance Demand I: Decisions Under Risk Without Diversification Possibilities
Abstract
Throughout this chapter, economic agents are assumed to have at their disposal two instruments of risk management only, viz., purchasing insurance coverage or exerting preventive effort. The possibility of coping with uncertainty through diversification of assets is, therefore, neglected.
Peter Zweifel, Roland Eisen, David L. Eckles
Chapter 4. Insurance Demand II: Nontraditional Approaches to Decisions Under Risk
Abstract
Up to this point, extensive use has been made of the expected utility theorem (i.e., the Bernoulli principle) for developing the theory of behavior under risk and of insurance demand in particular, which constitutes the traditional approach. However, mainly in response to the observed behavior that is found at odds with expected utility (EU), a number of nontraditional approaches have been developed.
Peter Zweifel, Roland Eisen, David L. Eckles
Chapter 5. Insurance Demand III: Decisions Under Risk with Diversification Possibilities
Abstract
In Chap. 3, risk management was restricted to one of two alternatives: Either leave the asset in question without insurance protection or buy a certain amount of insurance coverage. This narrow view may be appropriate for the decision situation of a household who owns just one marketable asset (e.g., a house). Closer inspection shows that even in this case, two additional assets should be considered, namely health and human capital (“wisdom”). This gives rise to the question of whether the existence of these other assets might influence the decision to buy insurance coverage for the home. Consider a household whose human capital and hence labor income depend heavily on regional economic development. To a certain degree, it can diversify its assets by buying an apartment in a neighboring region that has different economic prospects. In this way, it can reasonably expect that its marketable asset does not lose value at the same moment when its wage income goes down.
Peter Zweifel, Roland Eisen, David L. Eckles
Chapter 6. The Insurance Company and Its Insurance Technology
Abstract
Whereas Chaps. 3 and 5 revolve around demand for insurance, the focus of Chaps. 6 and 7 is on the insurance company (IC). Up to this point, the IC has been depicted as passive, its activity limited to charging a (fair) premium. However, an IC pursues objectives and has a host of instruments at its disposal for reaching them. The set of these instruments will be called insurance technology; it ranges from the design of products (for instance, exclusion of certain risks, “small print” in the contract) to providing services (advice regarding prevention, consumer accommodation, the settlement of claims) and on to the purchase of reinsurance and choice of strategy for capital investment.
Peter Zweifel, Roland Eisen, David L. Eckles
Chapter 7. The Supply of Insurance
Abstract
In this chapter, several dimensions of the supply of insurance coverage are examined. The first dimension is the pricing of insurance products. The objective is to calculate a minimum premium at which a single insurance product breaks evenly (provided the market accepts it). Section 7.1 introduces the reader to traditional premium calculation, where pricing depends upon the characteristics of the loss distribution and an exogenously given ruin probability (i.e., one minus the probability of solvency), applying elements of probability theory. On the other hand, for the determination of the market price of an insurance product, the alternatives which are available to investors and insurance buyers (IBs) in the capital market must be evaluated. Accordingly, in Sect. 7.2 elements of capital market theory are applied to derive the premium the insurance company (IC) must obtain to be sufficiently attractive to investors and can charge while still attracting IBs.
Peter Zweifel, Roland Eisen, David L. Eckles
Chapter 8. Insurance Markets and Asymmetric Information
Abstract
This chapter deals with a property of insurance markets that has been repeatedly mentioned before (e.g., in Sects. 5.​3, 6.​5, and 6.​6): Information may be distributed in an unequal way between the insurance company (IC) and the buyer of insurance (IB). Whereas in the markets for personal services, it is the consumer who is thought to suffer from a lack of information (patients vis-à-vis physicians, for example), it is usually the supplier in the case of financial services. For instance, the applicant for credit, as opposed to the bank, is better capable of judging the chances of success of the project to be financed. Likewise, it is the IB and not the IC who is better able to gauge the probability of a loss occurring in the future.
Peter Zweifel, Roland Eisen, David L. Eckles
Chapter 9. Regulation of Insurance
Abstract
This chapter deals with a fact that has been largely neglected up to this point: the insurance industry is one of the most tightly regulated. The arguments proffered for justifying this regulation are reviewed in Sect. 9.1, which also introduces the distinction between two types of insurance regulation. Section 9.2 outlines three theories of regulation designed to explain the changing intensity of insurance regulation and some of its consequences. Empirical evidence regarding the effects of regulation on the industry and consumers is presented in Sect. 9.3. Finally, Sect. 9.4 contains a discussion of recent trends in insurance regulation.
Peter Zweifel, Roland Eisen, David L. Eckles
Chapter 10. Social Insurance
Abstract
This chapter deals with social insurance (also called social security especially in the United States) and its interaction with private insurance (PI). After a short survey of the importance of social insurance (SI) in Sect. 10.1, the question of why there should be SI is raised in Sect. 10.2 (after all, there is no social banking!).
Peter Zweifel, Roland Eisen, David L. Eckles
Chapter 11. Challenges Confronting Insurance
Abstract
This chapter is devoted to foreseeable future developments that will pose challenges to the insurance systems of industrial countries. These challenges will call for adjustments by both private insurance (PI) and social insurance (SI), likely also affecting their division of labor. As a matter of principle, the need for adjustment will confront both PI and SI. The reason is that the changes in the economic environment discussed below result in modifications of risk behavior on the part of insurance buyers (IBs). 
Peter Zweifel, Roland Eisen, David L. Eckles
Backmatter
Metadaten
Titel
Insurance Economics
verfasst von
Prof. Dr. Peter Zweifel
Prof. Dr. Roland Eisen
Dr. David L. Eckles
Copyright-Jahr
2021
Electronic ISBN
978-3-030-80390-2
Print ISBN
978-3-030-80389-6
DOI
https://doi.org/10.1007/978-3-030-80390-2