Exclusions and the demand for property insurance

The paper examines property insurance contracts in which consumers choose t he upper limit on coverage. Exclusions are of two types, and both reduce th e demand for insurance of the included perils. A practical implication is t hat an insurer can raise the demand for fire insurance by offering an earth quake rider, and profit from the rider even when the premia are ceded in su ch a way that the rider does not raise profit directly. The results do not require assumptions about correlations between included and excluded losses , which is interesting because correlations are decisive in most of the oth er literature on background risk.