A Better Trigger: Indices for Insurance

Tse Ling Teh, Christopher Woolnough

Research output: Contribution to journalArticleResearchpeer-review

Abstract

Index triggers have enabled the extension of insurance to a wide range of risks, by providing a simple mechanism to determine payment. However, the resulting coverage generates basis risk, the variability over time in the level of insurance payouts relative to the level of losses. We analyze basis risk to rank binary and multivalue indices for any risk-averse individual. Our ranking provides methods to select an index that is optimal for a heterogeneous group and illustrates that higher correlation between loss and index, does not necessarily equate to a better index.

Original languageEnglish
JournalJournal of Risk and Insurance
DOIs
Publication statusE-pub ahead of print - 28 Feb 2018
Externally publishedYes

Fingerprint

Trigger
Insurance
Basis risk
Ranking
Risk-averse
Payment

Cite this

@article{f4a7a84b56ce4f9fadcdbdb573e694b2,
title = "A Better Trigger: Indices for Insurance",
abstract = "Index triggers have enabled the extension of insurance to a wide range of risks, by providing a simple mechanism to determine payment. However, the resulting coverage generates basis risk, the variability over time in the level of insurance payouts relative to the level of losses. We analyze basis risk to rank binary and multivalue indices for any risk-averse individual. Our ranking provides methods to select an index that is optimal for a heterogeneous group and illustrates that higher correlation between loss and index, does not necessarily equate to a better index.",
author = "Teh, {Tse Ling} and Christopher Woolnough",
year = "2018",
month = "2",
day = "28",
doi = "10.1111/jori.12242",
language = "English",
journal = "Journal of Risk and Insurance",
issn = "0022-4367",
publisher = "Wiley-Blackwell",

}

A Better Trigger : Indices for Insurance. / Teh, Tse Ling; Woolnough, Christopher.

In: Journal of Risk and Insurance, 28.02.2018.

Research output: Contribution to journalArticleResearchpeer-review

TY - JOUR

T1 - A Better Trigger

T2 - Indices for Insurance

AU - Teh, Tse Ling

AU - Woolnough, Christopher

PY - 2018/2/28

Y1 - 2018/2/28

N2 - Index triggers have enabled the extension of insurance to a wide range of risks, by providing a simple mechanism to determine payment. However, the resulting coverage generates basis risk, the variability over time in the level of insurance payouts relative to the level of losses. We analyze basis risk to rank binary and multivalue indices for any risk-averse individual. Our ranking provides methods to select an index that is optimal for a heterogeneous group and illustrates that higher correlation between loss and index, does not necessarily equate to a better index.

AB - Index triggers have enabled the extension of insurance to a wide range of risks, by providing a simple mechanism to determine payment. However, the resulting coverage generates basis risk, the variability over time in the level of insurance payouts relative to the level of losses. We analyze basis risk to rank binary and multivalue indices for any risk-averse individual. Our ranking provides methods to select an index that is optimal for a heterogeneous group and illustrates that higher correlation between loss and index, does not necessarily equate to a better index.

UR - http://www.scopus.com/inward/record.url?scp=85042565249&partnerID=8YFLogxK

U2 - 10.1111/jori.12242

DO - 10.1111/jori.12242

M3 - Article

JO - Journal of Risk and Insurance

JF - Journal of Risk and Insurance

SN - 0022-4367

ER -