The theory of risk classification

Keith J. Crocker, Arthur Snow

Research output: Chapter in Book/Report/Conference proceedingChapter

14 Scopus citations

Abstract

Risk Classification is the avenue through which insurance companies compete in order to reduce the cost of providing insurance contracts. While the underwriting incentives leading insurers to categorize customers according to risk status are straightforward, the social value of such activities is less clear. This chapter reviews the theoretical and empirical literature on risk classification, which demonstrates that the efficiency of permitting categorical discrimination in insurance contracting depends on the informational structure of the environment, and on whether insurance applicants become informed by the classification signal.

Original languageEnglish (US)
Title of host publicationHandbook of Insurance
Subtitle of host publicationSecond Edition
PublisherSpringer New York
Pages281-313
Number of pages33
ISBN (Electronic)9781461401551
ISBN (Print)9781461401544
DOIs
StatePublished - Jan 1 2013

All Science Journal Classification (ASJC) codes

  • Economics, Econometrics and Finance(all)
  • Business, Management and Accounting(all)

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  • Cite this

    Crocker, K. J., & Snow, A. (2013). The theory of risk classification. In Handbook of Insurance: Second Edition (pp. 281-313). Springer New York. https://doi.org/10.1007/978-1-4614-0155-1_11