Modeling demand for index insurance when indemnity-based insurance is unavailable

Develop a model of demand for index insurance in markets where indemnity-based insurance is unavailable, and devise a more nuanced approach to calibrate the policyholder utility function appropriate to this setting.

Background

The paper analyzes conditions under which index insurance is viable when competing with traditional indemnity-based insurance, focusing on demand modeled via expected utility, solvency constraints, loading factors, risk aversion, and compensation delays. It proposes sufficient conditions under exponential utility, derives solvency implications, and introduces a hybrid product combining index and indemnity payouts.

The authors explicitly note that their analysis is confined to contexts where indemnity-based insurance exists and highlight that modeling demand when indemnity coverage is unavailable is outside the scope of the current work. They flag this as future work that will require a more sophisticated calibration of the utility function.