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Speaker: Jörn Sass
We analyze the effects of mandatory unisex tariffs in insurance contracts on equilibrium insurance premia and equilibrium welfare. In the European Union, these are in effect since December 2012 following a ruling of the European Court of Justice.
Mathematically this problem corresponds to finding equilibria with asymmetric information, where an insurer is not allowed or cannot detect the risk type of the insured and thus has to design and offer contracts that are optimally chosen by the intended risk types. These risk types may be male/female, having/non-having a genetic disease, or in non-life insurance small/large farmers for insuring agricultural risk.
In a unified framework, we provide a quantitative analysis of the associated insurance market equilibria in both monopolistic and competitive insurance markets. We investigate the welfare loss caused by regulatory adverse selection and show that unisex tariffs may cause market distortions that significantly reduce overall social welfare. Extending the basic setting in Sass and Seifried (2014) we discuss implications for the design of insurance contracts in different markets and analyze how bonus distribution may reduce the effects.