The Impact of Insurer's Insolvency Risk on the Demand for Insurance Policies

According to theoretical models and a few empirical analyses, the insurer's insolvency risk has a great impact on the willingness to pay for insurance contracts and consequently on the premium income and the return of insurance companies. Hence, it seems reasonable to include the reactions of policyholders in a normative decision model for an optimal corporate policy of an insurance company. However, the recent literature only provides few approaches for dealing with this interdependence. Therefore, the objective of this research project is to examine the impact of default risk and the amount of insurable risk on the willingness to pay for insurance contracts by several experiments. In this regard, the interaction between risk of loss and risk of default should be further analysed for known and unknown probability distributions.