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Asian Review of Financial Research, Vol., No..
pp.1434~1449
pp.1434~1449
Insurance against Bundled Risks with an Application to Microinsurance
Jimin Hong Department of Business Administration Catholic University of Korea
S. Hun Seog Seoul National University Business School
We analyze the medical treatment choices and the demand for health insurance in a theoretical setting. Experiencing health losses, individuals may select from no, low, or high levels of medical treatment. High level treatment is interpreted as a bundling of low level treatment and additional treatment. Insurance against bundled risks implies that it covers against high level treatment only. Insurance is assumed to be actuarially fair.We find that the low-wealth individuals tend to select no treatment and purchase no insurance. The mediumwealth individuals select low treatment and purchase partial insurance. The high-wealth individuals select high treatment and purchase full insurance. The relation between wealth and coverage is not necessarily monotonic. We apply the findings to microinsurance and discuss the theoretical implications of microinsurance.
Jimin Hong
S. Hun Seog
We analyze the medical treatment choices and the demand for health insurance in a theoretical setting. Experiencing health losses, individuals may select from no, low, or high levels of medical treatment. High level treatment is interpreted as a bundling of low level treatment and additional treatment. Insurance against bundled risks implies that it covers against high level treatment only. Insurance is assumed to be actuarially fair.We find that the low-wealth individuals tend to select no treatment and purchase no insurance. The mediumwealth individuals select low treatment and purchase partial insurance. The high-wealth individuals select high treatment and purchase full insurance. The relation between wealth and coverage is not necessarily monotonic. We apply the findings to microinsurance and discuss the theoretical implications of microinsurance.