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Coinsurance of Large Risks

14 maggio 2012
Ex Boccherini - Piazza S. Ponziano 6 (Conference Room )
In the Netherlands, most municipalities insure property risks by means of coinsurance, that is, the risk is shared by several insurance companies. In the past, such contracts were established by means of active broker involvement through a negotiation procedure, but this changed after the European Commission intervened and enforced the use of an EU-tender procedure. The question then is how to organize such a tender. In particular, is coinsurance better than single-sourcing with one insurance company? While insurance firms argue that coinsurance yields efficiency benefits, the competition authority fears that coinsurance limits competition. In this paper, we analyze, by means of a game theoretic model, several tender procedures. Some of these are currently used; others (such as menu auctions) are inspired by the academic literature. We show that with an adequate design of the tender procedure, coinsurance indeed benefits the insurance taker. Some procedures might yield anti-competitive outcomes, with the “do or die” procedure from practice being particularly vulnerable.
Van Damme, Eric