Large Companies and Insurance Purchases: Some Survey Evidence*

The paper discusses the corporate demand for insurance by offering a brief review of the theoretical work in the area and by presenting the results of a survey of large U.K. companies with regard to their insurance purchase decision. It is argued that the usual pooling-of-risks motivation for insurance purchases can usefully be superseded by a transaction-costs theory where insurance offers a low-cost alternative to expensive contingent contracting among the stakeholders of the firm. There remain substantial uncertainties over how wide or encompassing the notion of transaction cost is in this context, and there is some evidence that institutional and regulatory considerations also play a part in the company's insurance purchase decision. The Geneva Papers on Risk and Insurance (2000) 25, 235–250. doi:10.1111/1468-0440.00062