Pure Market Solution: Optimal Compensation
I'm trying to understand why the pure market solution is rated as neutral, while the the high-risk pool is rated strong for the principle of optimal compensation. The rational given for the high-risk pool is:
"compensation relies on insurance, not DFA, so compensation should be predictable & sufficient and therefore optimal"
Does this apply to the pure market solution as well? Are there differences in compensation from a private insurer point of view (assuming the property owner has coverage)?
Comments
Quoting the text for the pure market solution:
"In terms of optimal compensation, this scheme has the potential to provide superior indemnification for the insured, though it falls short for the uninsured and most vulnerable"
I think this goes back to my earlier comment where under the pure market solution some people would literally not be able to obtain insurance. So compensation-wise, it's the same for 95% of normal risks as the high-risk pool (I mean it's the same insurer for both groups). The only difference is that the 5% highest risks would not be compensated under the pure market solution.