Essays on the Economics of Selected Multi-Period Insurance Decisions with Private Information

Chapter 5 Conclusion (S. 113-114)

This cumulative thesis consists of three theoretical papers on selected insurance decisions for multiple periods where customers have private knowledge of relevant characteristics for pricing. In all scenarios, the insured have the choice between di?erent insurance and/or saving vehicles among which one is designed to address the above-mentioned issue of private information.

The aim of all three papers is to investigate individual optimal insurance decisions and, thus, assess the demand reaction to those products aiming to reduce private information issues. The ?rst paper demonstrates that, without imposing a minimum deductible, tax-favored HSAs lead to a voluntary reduction in insurance coverage. However, if a too high minimum deductible is imposed, it can be better to remain in traditional health insurance.

The paper also shows that the aim of HSAs to increase savings and e?ort simultaneously cannot be reached. The second paper investigates insurance contracts in the case of hidden information from the reverse perspective. In this paper, we assume that risk classi?cation is executed up to a degree such that individuals want to insure against it. Allowing for fuzzy private information that is heterogeneous among agents we explain the existence of risk classi?cation insurance in certain markets. In addition, we show that Pareto improvements are possible compared with the standard risk classifying insurance contracts by the additional o?er of risk classi?cation insurance.

The third paper examines the demand for enhanced annuities and shows that if there is private information, enhanced annuities will be in demand. With complete private information, all individuals purchase enhanced annuities while varying precise knowledge among the insured can lead to situations where only part of the population buys enhanced annuities. However, the paper indicates that welfare is reduced by the introduction of enhanced annuities compared with a situation with only standard annuities available.

To sum up, the design of insurance contracts plays an important role when information on insurance markets is distributed unequally between insurers and insured. In many cases, expediently designed contracts can lead to increased utility and welfare. However, this thesis illustrates that careful economic consideration of demand reactions is necessary. Rational behavior due to multiple incentives can sometimes lead to di?erent outcomes from those expected at ?rst sight, as demonstrated by the selected papers of this thesis.