Definition
Insurance is an instrument to give protection against the risk resulting from various perils or hazards, such as health risks, invalidity or death, accidents, unemployment, theft, fire, and many more. Contracts are offered by insurance companies providing risk-sharing mechanisms that allow their customers to replace these risks. Insurance market is characterized by failures that impose particular negative consequences on one or both market sides: Given the failures, different remedies may improve the market outcome.
Introduction
Insurance plays three economic functions: (i) the transfer of risk from a risk-adverse individual to the risk-neutral insurer, (ii) the pooling of risk so that the “uncertainty” of each insured becomes the “certainty” of the insurance companies that this risk will occur to a percentage of their customers, and (iii) the allocation of risk for which each insured pays a price that should reflect the risk he/she contributes (Abraham 1995).
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References
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Porrini, D. (2021). Insurance Market Failures. In: Marciano, A., Ramello, G.B. (eds) Encyclopedia of Law and Economics. Springer, New York, NY. https://doi.org/10.1007/978-1-4614-7883-6_615-2
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DOI: https://doi.org/10.1007/978-1-4614-7883-6_615-2
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Chapter history
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Latest
Insurance Market Failures- Published:
- 19 August 2021
DOI: https://doi.org/10.1007/978-1-4614-7883-6_615-2
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Original
Insurance Market Failures- Published:
- 16 February 2017
DOI: https://doi.org/10.1007/978-1-4614-7883-6_615-1