Insurance Economics
Insurance Economics brings together the economic analysis of decision making under risk, risk management and demand for insurance by individuals and corporations, objectives pursued and management tools used by insurance companies, the regulation of insur
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Peter Zweifel • Roland Eisen
Insurance Economics
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Prof. Dr. Peter Zweifel University of Zurich Department of Economics Hottingerstrasse 10 8032 Zurich Switzerland [email protected]
Prof. Dr. Roland Eisen Dr. B¨ottcher-Str. 12 81245 Munich Germany [email protected]
Original German edition published with title “Versicherungs¨okonomie”
ISBN 978-3-642-20547-7 e-ISBN 978-3-642-20548-4 DOI 10.1007/978-3-642-20548-4 Springer Heidelberg Dordrecht London New York Library of Congress Control Number: 2011945421 c Springer-Verlag Berlin Heidelberg 2012 This work is subject to copyright. All rights are reserved, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilm or in any other way, and storage in data banks. Duplication of this publication or parts thereof is permitted only under the provisions of the German Copyright Law of September 9, 1965, in its current version, and permission for use must always be obtained from Springer. Violations are liable to prosecution under the German Copyright Law. The use of general descriptive names, registered names, trademarks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. Printed on acid-free paper Springer is part of Springer Science+Business Media (www.springer.com)
Foreword
While insurance can be traced back over millennia, it is only in the last half century that we have come to a comprehensive and deep understanding of this most vital, yet complex, economic institution. To really understand insurance takes a deep knowledge of the subtleties of risk and probability, of how rational (and not so rational) people behave when faced with risk; of how insurance companies can be structured to cope with risk; of how governments can effectively intercede when insurance markets fail to deliver. Such a journey will take us to such interesting phenomena as “adverse selection” and “moral hazard”; it will expose us to modern financial theories such as asset pricing theory and option theory and, in doing so, will expose us to such exotic financial instruments as catastrophe bonds. It will take us deep into public policy and the welfare state and into the challenges of operating universal health insurance programs. And it will face us with the challenges of a world where new and unpredicted risks (many of which were revealed in 2007/9 financial crisis) are appearing and for which normal insurance mechanisms may not function. Such is the journey for which Peter Zweifel and Roland Eisen will guide us. It would be hazardous to try to pinpoint the first attempts to explain an economic theory of insurance. Adam Smith, predictably, had something sensible to say. With commendable parsimony, he captures in two sentences the essential in
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