This chapter will formulate a general theory of demand for fair index based insurance schemes by developing a model in which the key feature of an index based insurance, the correlation between an index and the insured’s loss, is incorporated in an explicit manner. Thereby, the necessity of a correlation between an index and personal loss as the crucial element is proven. Furthermore, previous results are extended onto a general level so that, in particular, a fair but not perfectly correlated index based insurance can merely yield partial coverage.
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