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Title: Risk Classification in Insurance Contracting
Authors: Dionne, Georges
Rothschild, Casey G.
Keywords: Adverse selection
Classification risk
Diagnostic test
Empirical test of asymmetric information
Financial equity
Genetic test
Health insurance
Insurance rating
Insurance pricing
Moral hazard
Risk classification
Risk characteristic
Risk pooling
Risk separation
Social equity
Issue Date: 2011-11
Series/Report no.: Cahiers du CIRPÉE;11-37
Abstract: Risk classification refers to the use of observable characteristics by insurers to group individuals with similar expected claims, compute the corresponding premiums, and thereby reduce asymmetric information. An efficient risk classification system generates premiums that fully reflect the expected cost associated with each class of risk characteristics. This is known as financial equity. In the health sector, risk classification is also subject to concerns about social equity and potential discrimination. We present different theoretical frameworks that illustrate the potential trade-off between efficient insurance provision and social equity. We also review empirical studies on risk classification and residual asymmetric information.
URI: https://depot.erudit.org/id/003563dd
Appears in Collections:Cahiers de recherche du CIRPÉE

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CIRPEE11-37.pdf, (Adobe PDF ; 1.11 MB)

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