Title: Optimal deductible and coinsurance policies under mean-variance preferences

Authors: Christopher Gaffney

Addresses: Department of Decision Sciences and MIS, Drexel University, Philadelphia, PA, USA

Abstract: The paper presents a mean-variance analysis of optimal insurance coverage, showing how the relationship between the attitudes of the insured, in the form of their risk tolerance level, and the insurer, in the form of the insurance premium, affects insurance demand. Optimal parameter values (deductible, coverage limit, coinsurance level, and stop-loss limit) are derived, and policies which include coinsurance and either a stop-loss limit or a deductible reduce to a straight deductible policy in the optimum, are shown. Also shown was that straight coinsurance is inferior to these policies.

Keywords: mean variance; optimal deductible; coinsurance; stop-loss; risk aversion.

DOI: 10.1504/IJOR.2022.124103

International Journal of Operational Research, 2022 Vol.44 No.3, pp.349 - 359

Received: 09 May 2019
Accepted: 12 Jun 2019
Published online: 13 Jul 2022 *

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