The Formation of Mutual Insurers in Markets with Adverse Selection

Managing Interdependent Information Security Risks: A Study of Cyberinsurance, Managed Security Service and Risk Pooling

“…The mutual form of insurance can also address the interest conflicts between insurers and policyholders, since policyholders themselves are the owners of a mutual insurer (Cummins and Weiss 1999;Mayers 1988;Mayers and Smith 1981). Moreover, mutual insurers may coexist with independent insurers as a result of adverse selection of risk-averse policyholders (e.g., Ligon and Thistle 2005). This paper complements the above studies by illustrating the advantages of mutual insurance organizations from a new perspective.…”

“…Examples of RPA include group captive insurance companies, risk retention groups, self-insurance groups, etc. 4 Mutual insurance was widely adopted in the insurance market for medical malpractice and municipal liability during the late 1980s (Ligon and Thistle 2005), and has since been used also in other lines of insurance, such as employee pension and employee health insurance. The traditional advantages of RPA over commercial insurance include reduced overhead expense and flexible policy development (Swiss Re 2003).…”

Multiple Criteria Decision Making in Finance, Insurance and Investment

“…Zanjani 2007;Erhemjamts and Phillips 2012). Furthermore-without being exhaustive-researchers have studied how a Paretooptimal risk allocation can be achieved through mutual insurance in the presence of individual risk (Cass et al 1996); the dissimilarities concerning capital structure which may result from the cost of raising new capital (Harrington and Niehaus 2002); issues arising from asymmetric information that can restrict the size of the mutuals (Ligon and Thistle 2005); how mutuals can resolve free-rider and commitment issues faced by stock insurers by linking policies to the provision of capital (Laux and Muermann 2010); or have developed a normative theory of the relationship between stock and mutual insurers based on a contingent claims framework (Braun et al 2015).…”

Participating Insurance Contracts and the Rothschild-Stiglitz Equilibrium Puzzle

“…However they do not observe that a pooling equilibrium may occur under participating contracts, and consequently they do not say anything about equilibrium existence issues. Ligon and Thistle (2005) study the coexistence between mutuals or between mutuals and stock insurers They show that, under certain conditions, a separating equilibrium exists in which high risks form large mutuals and low risks form small mutuals. The conditions under which this separating equilibrium exists are analogous to those under which a separating equilibrium exists in the standard RS model.…”