Reinsuring the Poor: Group Microinsurance Design and Costly State Verification
نویسنده
چکیده
This paper analyses collusion-proof multilateral insurance contracts between a risk neutral insurer and multiple risk averse agents in an environment of asymmetric costly state verification. The optimal contract in the benchmark model involves the group of agents pooling uncertainty and the insurer acting as reinsurer to the group, auditing and paying a claim only when the group or a sub-group has incurred a large enough aggregate loss. We interpret the model as providing support for Stop Loss insurance contracts between insurance providers, such as microinsurers or governments, and groups of individuals who have access to cheap information about each other, such as extended families or members of close-knit communities. Such formal contracts complement, and could even crowd in, cheap nonmarket insurance arrangements. Perturbed models yield optimal contracts that may be compared with Area Index insurance and Index Plus Gap insurance contracts.
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