Insurance Economics
Paper Session
Saturday, Jan. 3, 2026 2:30 PM - 4:30 PM (EST)
- Chair: Martin Boyer, HEC Montréal
Moral Hazard in Peer-to-Peer Insurance
Abstract
By gathering communities of acquainted participants, peer-to-peer (P2P) insur-ance has been providing partially refundable insurance coverage associated with the social networks among its participants. This study analyzes the issue of moral haz-ard within the framework of peer-to-peer insurance from a theoretical perspective. We investigate how the social network within the community affects the partici-pants’ incentive to spend effort on precautionary loss prevention. Using a quanti-tative framework to study the moral hazard in P2P insurance, we present that the participants’ efforts at Nash equilibria are influenced by their social network. In addition, we investigate how participants’ tendency to spend effort in reducing risk varies according to the structure of the social network.Who Monitors Climate Risk of Financial Institutions? Evidence from Catastrophe Risks in Insurance
Abstract
We assess the ability of the regulators and private monitors like credit rating agen-cies to evaluate and discipline the exposure of the insurance industry to natural catastrophe (NatCat) risks intensified because of climate change. We demonstrate that the rating agency A.M. Best is a more stringent monitor than the US insur-ance regulators in that it provides more adequate assessment of insurers’ exposure to NatCat risk compared to regulatory risk-based capital standards; also, it has a long-lasting discipline effect by incentivizing insurers to improve their NatCat risk management. But A.M. Best’s monitoring disciplines only a limited segment of the insurance market. We show that in response to stricter rating requirements for NatCat risks, many insurers accept the downgrades and become riskier. Meanwhile, the regulatory capital requirements are not capable of curtailing their excessive risk-taking.The Immediate Needs Annuity and Long-Term Care Insurance
Abstract
The market for traditional long-term care insurance is quite small in high-income countries, even in those that lack universal insurance. The market for income annuities is also small, and in the United States, annuities are not medically underwritten, leaving a missing market for individuals seeking to insure consumption or bequests very late in life. In the United Kingdom a different product has emerged – an immediate needs annuity (INA). Individuals purchase an INA at the point when the need for care arises. INAs are medically underwritten, like long-term care insurance, but annuity payments are not dependent on care usage. Compared to purchasers of income annuities, the expected remaining lifespan of an INA purchaser is diminished, yet the variance, relative to expected longevity, might be considerably increased, potentially making INAs a riskier product to offer and perhaps lowering money’s worth relative to income annuities. We describe the functioning of INAs in the U.K market and evaluate the potential demand for them in a theoretical model, with implications for the U.S. market. We find that purchasing an INA upon first needing care makes individuals better off if they have moderate to high wealth levels. INA purchasers are able to sustain higher levels of consumption in their remaining lifetime, and while their assets initially drop at purchase, asset levels (and hence potential bequests) decline more slowly afterwards than they would otherwise. We also find that, for individuals at the lower end of the wealth levels at which INA purchase is optimal, the likelihood of ending up in government-financed care drops by a moderate amount, while higher-wealth purchasers are unlikely to use government care, whether or not they purchase an INA.JEL Classifications
- G2 - Financial Institutions and Services
- D8 - Information, Knowledge, and Uncertainty