Measurement and pricing of risk in insurance markets

Risk Analysis : an Official Publication of the Society for Risk Analysis
Andreas Tsanakas, Evangelia Desli

Abstract

The theory and practice of risk measurement provides a point of intersection between risk management, economic theories of choice under risk, financial economics, and actuarial pricing theory. This article provides a review of these interrelationships, from the perspective of an insurance company seeking to price the risks that it underwrites. We examine three distinct approaches to insurance risk pricing, all being contingent on the concept of risk measures. Risk measures can be interpreted as representations of risk orderings, as well as absolute (monetary) quantifiers of risk. The first approach can be called an "axiomatic" one, whereby the price for risks is calculated according to a functional determined by a set of desirable properties. The price of a risk is directly interpreted as a risk measure and may be induced by an economic theory of price under risk. The second approach consists in contextualizing the considerations of the risk bearer by embedding them in the market where risks are traded. Prices are calculated by equilibrium arguments, where each economic agent's optimization problem follows from the minimization of a risk measure. Finally, in the third approach, weaknesses of the equilibrium approach are address...Continue Reading

References

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Citations

Nov 11, 2015·Risk Analysis : an Official Publication of the Society for Risk Analysis·Andreas Tsanakas, Pietro Millossovich
Apr 19, 2008·Risk Analysis : an Official Publication of the Society for Risk Analysis·Yi Hsin Lin, Yu Hern Chang
Jun 14, 2013·Risk Analysis : an Official Publication of the Society for Risk Analysis·Jaume Belles-SamperaMiguel Santolino
Apr 9, 2015·Risk Analysis : an Official Publication of the Society for Risk Analysis·Brett HouldingDonnacha Bolger
Jun 12, 2014·Risk Analysis : an Official Publication of the Society for Risk Analysis·Cameron A MacKenzie
Jan 1, 2012·Reports of Practical Oncology and Radiotherapy : Journal of Greatpoland Cancer Center in Poznań and Polish Society of Radiation Oncology·Mirella Smigielska, Piotr Milecki
Aug 29, 2018·Risk Analysis : an Official Publication of the Society for Risk Analysis·Seyed Javad HashemiSalim Ahmed

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