Insurance (INS)

Benjamin Handel and Motohiro Yogo, Co-Directors

    From a household's perspective, insurance is an important part of financial planning and well-being. Traditionally, insurance has been used to diversify idiosyncratic health, life, longevity, and property/casualty risk. More recently, insurance is used to diversify aggregate risk across generations through guaranteed-return products that are replacing public and private pension plans. Adverse selection and moral hazard can arise in insurance markets when policyholders have more information than the insurer. These informational frictions can affect pricing and contractual form and ultimately cause market incompleteness.

    Various frictions can also affect the supply side of insurance markets. Agency problems can cause insurance companies to not always act in the interests of policyholders and guaranty funds that protect them. Therefore, insurance companies are monitored and regulated in many countries. Regulation can in turn affect how insurance companies invest, what products they offer, and how they price products. Capital market imperfections and market power are also important frictions that affect the supply of insurance.

    NBER's Insurance Working Group is a forum for gathering experts from academia, government, and the industry to better understand insurance markets and to address related policy questions. We have a broad focus that welcomes both empirical and theoretical approaches from various fields of economics. We usually meet once a year for a one-day conference, part of which is joint with another NBER group (Corporate Finance, Health Care, Industrial Organization, or Public Economics).