Article ID: | iaor20162046 |
Volume: | 83 |
Issue: | 2 |
Start Page Number: | 363 |
End Page Number: | 385 |
Publication Date: | Jun 2016 |
Journal: | Journal of Risk and Insurance |
Authors: | Peter Richard, Richter Andreas, Steinorth Petra |
Keywords: | financial, information, marketing, risk, demand |
The article shows that heterogeneous incomplete private information can explain the limited existence of guaranteed renewable health insurance (GR) contracts in an otherwise frictionless markets. We derive a unique equilibrium that can be of the form that either only a portion of the population or none will cover themselves against premium risk with a GR contract. Increased risk aversion, increased premium risk, and first‐order stochastic improvements of the distribution of private information increase the likelihood of positive take‐up. In case GR contracts are in demand, increased risk aversion and first‐order stochastic improvements of the distribution of private information lead to more individuals purchasing the GR contract.