Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/76222
Authors: 
Eugster, Patrick
Zweifel, Peter
Year of Publication: 
2006
Series/Report no.: 
Working Paper, Socioeconomic Institute, University of Zurich 0604
Abstract: 
This contribution starts out by noting a conflict of interest between consumers and insurers. Consumers face positive correlation in their assets (health, wealth, wisdom, i.e. skills), causing them to demand a great deal of insurance coverage. Insurers on the other hand eschew positively correlated risks. It can be shown that insurance contributes to a reduction of their asset volatility only if unexpected deviations of payments from expected value correlate negatively across lines of insurance. Analyzing deviations from trend in aggregate insurance payments, one finds the following for the United States and Switzerland. Private U.S. but not Swiss insurance has a hedging effect for consumers, while both social insurance schemes expose consumers to excess asset volatility. In the insurance systems of both countries, the private component fails to offset deviations in the social component (and vice versa). As to the supply of insurance, cointegration analysis indicates the absence of common trends. Therefore, insurance companies could offer combined policies to the benefit of consumers, hedging their underwriting risks both domestically and internationally.
Subjects: 
Insurance
Portfolio Theory
International Diversification
Combined Contracts
JEL: 
G22
G15
G11
D14
C22
Document Type: 
Working Paper

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