The Advancement Of Insurance Demand Theory

The studies of insurance demand include early insurance demand thoughts and modern insurance demand theory which involves optimal insurance theory and life insurance demand theory.With economists' thoughts concerned with profits developing, the early insurance demand thoughts advanced. Adam Smith (1776) thought insurance could give security to the loss. Alfred Marshall (1890) argued insurance could compensate the loss. Frank Knight (1921 )believed people may transfer the measurable risk to insurance company.Solomon Huebner (1924 1927) explained the economic principle of life demand based on the concept of human life value" and thought purchase of life insurance could protect life value. Abraham Maslow ( 1943 1954 )believed purchase of insurance was based on safety needs.From the microeconomic perspective, optimal insurance theory studies how microeconomic subject elects optimal insurance coverage. It was initiated in 1960s, the development of which is the advancement of the equilibrium solution to Arrow (1963 1965). The solution is either partial insurance or full insurance.The initiators of optimal insurance theory are Kenneth Arrow (1963 ), Jan Mossin (1968) and Vernon Smith (1968 ). Denis Moffet (1977) firstly integrated joint optimal insurance coverage model on consumption, saving and insurance. Assaf Razin (1976) and Eric Briys and Henri Louberge (1985 ) abandoned expected utility hypothesis and gave the optimal insurance coverage based on Hurwicz criterion and Savage's regret criterion, respectively. The main stream of optimal insurance theory concerned the optimal insurance coverage under more than one risk, that was pointed out by Stuart Turnbull (1983). At the same time, Neil Doherty and Harris Schlesinger (1983a 1983b) gave the more general results. They investigated insolvency risk in the model subtly in 1990.From the macroeconomic perspective, Life insurance demand theory mentionedthe relation on purchase of life insurance and macroeconomic variable , consumption. The theory was found in 1960s, the development of which is to investigated why purchase of life insurance and annuities might reduce or absorb the uncertainty stemming from future income stream so that people could have optimal life cycle consumption utility and which factors influence life insurance demand.The theory was set up by Menahem Yaari (1965) that demonstrated insurance could reduce uncertain lifetime effect based on life cycle consumption hypothesis. Christopher Pissarides (1980) extended uncertainty to the fluctuations in income. The studies of Stanley Fischer (1973), Edi Kami and Itzhak Zilcha (1985, 1986) and Frank Lewis (1989) showed which factors influence life insurance purchase decision.In the advancement of optimal insurance theory, we found that the factors that influence the optimal insurance coverage include loading factor, wealth, uninsurable assets, consumption and saving, insolvency and mental factors. In the development of life insurance theory, we found that some factors influence life insurance purchase decision, such as loading factor, expected future income, death rate, bequest motive and mental factors, etc.