The Merits of Pooling Claims Revisted
Journal
Journal of Risk Finance
ISSN
1526-5943
ISSN-Digital
2331-2947
Type
journal article
Date Issued
2012-11-05
Author(s)
Abstract
Purpose
– Definitions of pooling effects in insurance companies may convey the impression that the achieved risk reduction effect will be beneficial for policyholders, since typically lower premiums are paid for the same safety level with an increasing number of insureds, or a higher safety level is achieved for a given premium level for all pool members. However, this view is misleading and the purpose of this paper is to reexamine this apparent merit of pooling from the policyholder's perspective.
Design/methodology/approach
– This is achieved by comparing several valuation approaches for the policyholders' claims using different assumptions of the individual policyholder's ability to replicate the contract's cash flows and claims.
Findings
– The paper shows that the two considered definitions of risk pooling do not offer insight into the question of whether pooling is actually beneficial for policyholders.
Originality/value
– The paper contributes to the literature by extending and combining previous work, focusing on the merits of pooling claims (using the two definitions above) from the policyholder's perspective using different valuation approaches.
– Definitions of pooling effects in insurance companies may convey the impression that the achieved risk reduction effect will be beneficial for policyholders, since typically lower premiums are paid for the same safety level with an increasing number of insureds, or a higher safety level is achieved for a given premium level for all pool members. However, this view is misleading and the purpose of this paper is to reexamine this apparent merit of pooling from the policyholder's perspective.
Design/methodology/approach
– This is achieved by comparing several valuation approaches for the policyholders' claims using different assumptions of the individual policyholder's ability to replicate the contract's cash flows and claims.
Findings
– The paper shows that the two considered definitions of risk pooling do not offer insight into the question of whether pooling is actually beneficial for policyholders.
Originality/value
– The paper contributes to the literature by extending and combining previous work, focusing on the merits of pooling claims (using the two definitions above) from the policyholder's perspective using different valuation approaches.
Language
English
HSG Classification
contribution to scientific community
HSG Profile Area
SoM - Responsible Corporate Competitiveness (RoCC)
Refereed
Yes
Publisher
Emerald
Publisher place
Bradford
Volume
13
Number
3
Start page
184
End page
198
Pages
15
Subject(s)
Division(s)
Eprints ID
236497