Strategic competition in informal risk sharing mechanism versus collective index insurance
This study explores how natural disasters challenge traditional risk management and insurance mechanisms. Researchers developed a three-strategy evolutionary game model to examine the competition among formal index insurance, informal risk sharing, and non-insurance. The model incorporates insurance company profits to aid optimal pricing. Findings suggest that basis risk and loss ratios strongly influence insurance adoption. Low basis risk and high loss ratios favor index insurance, while moderate loss ratios lead to informal risk sharing. Low loss ratios often result in no insurance uptake. Accurately estimating risk aversion and risk sharing ratios is essential for forecasting index insurance market trends.