| Eric van Damme (Tilburg University). |
| Procuring coinsurance contracts for large risks |
| (with Jan Boone and Anja de Waegenaere) |
| Abstract In the Netherlands, municipalities usually insure property risks by means of coinsurance, that is, the risk is shared by several insurance companies. In the past, such contracts were established by means of active broker involvement through a negotiation procedure, but this changed after the European Commission intervened and enforced using an EU-tender procedure. The question then is how to organize such a tender. In particular, does coinsurance indeed yield efficiency benefits, as compared to single-sourcing, as insurance companies argue? Or does coinsurance limit competition, as the competition authority fears? In this paper, we analyze, by means of game theoretic modeling, several tender procedures. Some of the models are stylized versions of procedures that are currently used; others (such as menu auctions) are inspired by the academic literature. We show that with an adequate design of the tender procedure, coinsurance indeed benefits the insurance taker. Some procedures might yield anti-competitive outcomes, with the "do or die" procedure from practice being particularly vulnerable. |