Valuation of information-sharing in marine mutual insurance

Abstract

With empirical evidence from marine mutual insurance (MMI), an impulse feedback model is constructed to address how information-sharing can help increase the social welfare as well as efficiency of the operation of MMI system. Focusing on information-sharing, this paper considers premium policy optimization of under a mutual insurance system with a homogeneous market of identical members. Our findings confirm that the principle of mutuality can be attained under “equal-risk pooling”, but not necessarily under “unequal-risk pooling”, and reveal that quantifiable difference exists in valuation of mutuality under the two schemes of risk pooling. It points out that the key to a successful MMI is the equal-risk pooling. Algorithms are developed to compute the value of mutuality by solving the HJB equations and quasi-variational inequalities. The conclusion provides a scientific basis for both managerial strategy and competition regulation. The findings are applicable to a wide range of reserve and inventory management problems.