Efficiency and Equity in Insurance

The pooling of heterogeneous risks is shown to increase financial efficiency as viewed by the insurer or by an insured individual, though not necessarily from the point of view of society. When heterogeneous risks are pooled, issues of equity among groups of insurance purchasers arise. The use of th...

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Bibliographic Details
Published in:The Journal of risk and insurance 1984-06, Vol.51 (2), p.190-204
Main Author: Venezian, Emilio C.
Format: Article
Language:English
Subjects:
Automobile insurance
Discrimination
Efficiency
Equity
Financial risk
Insolvency
Insurance coverage
Insurance industry
Insurance pools
Insurance premiums
Insurance providers
Insurance rates
Insurance risk
Insurers
Losses
Methods
Price discrimination
Prices
Pricing
Risk
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Summary:The pooling of heterogeneous risks is shown to increase financial efficiency as viewed by the insurer or by an insured individual, though not necessarily from the point of view of society. When heterogeneous risks are pooled, issues of equity among groups of insurance purchasers arise. The use of the same premium loadings for all groups of policyholders can result in inequities so blatant that a group may pay more in a multiline company than it would in a monoline company. The data to test whether such violations occur are not available.
ISSN:0022-4367
1539-6975
DOI:10.2307/252553