Social Risk in Health Insurance: A Reflection on the Economies of Scale and Scope in Health Insurance

Social risk causes distortion in the health insurance market. In the presence of social risk, health insurance must be inflated with a safety loading. This implies that policyholder will choose incomplete risk transformation and that health insurers have to build up large capital reserves. By using cross-diversification and enlarging the insurance pool with other kinds of risk (utilising economies of scope in addition to scale production), the problem of social risk will reduce. It is shown how this is possible by using the capital market as a diversification pool     

Risk Classification by Fuzzy Inference

Traditionally, policyholders in life insurance are classified in simple mortality tables, most often according to only a few risk characteristics. Instead of a risk classification according to the numerical rating system, this article describes how to classify by using a fuzzy inference methodology. By defining risk factors as fuzzy sets, it is shown that an insurer can utilize multiple prognostic factors that are imprecise and vague. The presented fuzzy risk classification provides a more realistic way of modeling mortality risks since it allows for compensations and interactions between multiple risk factors.