The impact of excess verdicts on the insurance industry
A study of the optimal insurance problem from the buyer’s perspective, with a particular focus on excess verdicts and their legal and financial impacts.
This paper provides a thorough study into the impact of excess verdicts on the insurance industry.
It also explores the optimal insurance strategy from the policyholder’s perspective, especially when the court awards compensation beyond the insurance coverage, i.e., excess verdicts. This is particularly prominent in wrongful death cases, where both financial and legal risks are considerable.
The researchers introduce a mathematical model that simplifies these complex interactions into manageable components, such as loss amount and legal stage, to better understand when insurers need to cover excesses over policy limits.
The study shows that optimal insurance contracts employ multiple layers of indemnity to accommodate different risk environments, resulting in optimal risk allocation between insurers and policyholders, minimizing legal costs, and ensuring fair coverage.
The paper Excess Verdicts Insurance is available for download at City Research Online
