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Guaranteed renewability in insurance

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Abstract

We propose a guaranteed renewability (GR) insurance in which a sequence of premiums would enable insurers to break even and would be chosen by both low- and high-risk buyers, whether or not they had suffered a loss. The premium schedule would continually decline over time, as the insurer collects more information to determine who the low-risk buyers are. The highest premiums are charged initially to protect the insurer if low-risk individuals leave for the spot market. The concluding portion of the article discusses the limitations of a GR policy in the health and environmental liability area, the most serious being instability in estimates of underlying loss trends.

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References

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Authors and Affiliations

  1. Health Care Systems Department, The Wharton School, University of Pennsylvania, 19104, Philadelphia, PA

    Mark V. Pauly

  2. Operations & Information Management Department, The Wharton School, University of Pennsylvania, 19104, Philadelphia, PA

    Howard Kunreuther

  3. Department of Health Management and Policy, University of Michigan, 48109-2029, Ann Arbor, MI

    Richard Hirth

Authors
  1. Mark V. Pauly
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  2. Howard Kunreuther
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  3. Richard Hirth
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Pauly, M.V., Kunreuther, H. & Hirth, R. Guaranteed renewability in insurance. J Risk Uncertainty 10, 143–156 (1995). https://doi.org/10.1007/BF01083557

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  • DOI: https://doi.org/10.1007/BF01083557

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