Insurance Pools for New Undiversifiable Risk

David Alary (1) , Catherine Bobtcheff (1) , Carole Haritchabalet (2)

1 TSE-R - Toulouse School of Economics
2 CATT - Centre d'Analyse Théorique et de Traitement des données économiques

The European insurance industry benefits from some special antitrust exemptions. Indeed, insurers can syndicate, via a "pool", for the coverage of undiversifiable risks. We show that the pool issue amounts to share a common value divisible good between capacity constrained agents with a reserve price and private information. We characterize the equilibrium risk premium of this game and the resulting insurance capacity offered. We then compare the pool to a discriminatory auction upon two dimensions, the total capacity insured and the premiums. There is no clear domination of one auction format. Strength of affiliation and competition are key variables.

Mots clés: competition; undiversifiable risk; common value auction; insurance

Domaines: Economies et finances

David Alary, Catherine Bobtcheff, Carole Haritchabalet. Insurance Pools for New Undiversifiable Risk. EEA-ESEM, European Economic Association, Aug 2017, Lisbon, Portugal. ⟨hal-02439667⟩