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Article Dans Une Revue Economics Bulletin Année : 2019

On the uselessness of self-insurance clauses ?

Résumé

An insurer can monitor the policyholder's prevention effort when it is observable ex-post by using a contract clause. The literature on insurance contracts does not explicitly address the role of contract clauses. We examine the role of such clauses in case of self-insurance. Because of the substitutability between insurance and self-insurance, contract clauses focused on self-insurance investments could cause a possible deterrent effect on insurance demand, highlighting their puzzling nature. In a theoretical model, we examine two arguments to overcome the compulsory self-insurance clause paradox: the observability of the self-insurance investment and the role of the self-insurance clause on insurance demand. The fact that self-insurance investments are not observable ex-ante cannot justify the use of a mandatory clause. Neither the demand for insurance nor the demand for prevention is observability-dependent. Therefore, self-insurance clauses are, at best, useless, at worst, counterproductive: when binding, they reduce the size of the insurance market.
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Dates et versions

hal-02121860 , version 1 (19-09-2019)

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  • HAL Id : hal-02121860 , version 1
  • PRODINRA : 468486
  • WOS : 000504882300007

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Marielle Brunette, Stéphane Couture, Anne Corcos, Francois Pannequin. On the uselessness of self-insurance clauses ?. Economics Bulletin, 2019, 39 (2), pp.830-837. ⟨hal-02121860⟩
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