Multiline Insurance: Bundling Risks to Reduce Moral Hazard
نویسنده
چکیده
I analyze the role of bundling risks to be covered by one multiline integrated risk management policy in the presence of moral hazard. The structure of the optimal multiline policy depends on a firm’s risk-management objective. It is shown that– subject to retaining incentives to invest in risk reduction–the firm might be able to reduce the maximum retained loss by choosing a multiline policy with a common aggregate deductible. In contrast, a common aggregate policy limit is optimal if the objective is to minimize the expected retained loss. Therefore, multiline insurance might allow an improved trade-off between risk transfer and incentives. JEL Classification: G22, D82
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