2006•Journal of Chongqing Institute of TechnologyRequires access

Moral Hazard and Principal-Agent Model in Insurance

Shu Jun-hui

Abstract

Principal-agent model is applied to moral risk in insurance for the insurer's interest maximization.It is analyzed that the characters of risk sharing and incentives in the optimal insurance contracts.Under moral risk,the optimal insurance contracts cannot achieve the Pareto optimal risk sharing,and require partial insurance for incentives.Insurer's actual loss value can increase as the loss value increases.

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Key concepts: Moral hazard, Principal (computer security), Incentive, Actuarial science, Morale hazard, Maximization, Value (mathematics), Auto insurance risk selection