|
on Insurance Economics |
|
Issue of 2005‒01‒23
two papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Bussiness Management |
| By: | Amy Finkelstein; Kathleen McGarry; Amir Sufi |
| Abstract: | We examine whether unregulated, private insurance markets efficiently provide insurance against reclassification risk (the risk of becoming a bad risk and facing higher premiums). To do so, we examine the ex-post risk type of individuals who drop their long-term care insurance contracts relative to those who are continually insured. Consistent with dynamic inefficiencies, we find that individuals who drop coverage are of lower risk ex-post than individuals who were otherwise-equivalent at the time of purchase but who do not drop out of their contracts. These findings suggest that dynamic market failures in private insurance markets can preclude the efficient provision of insurance against reclassification risk. |
| JEL: | D4 D8 I11 G22 J14 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11039&r=ias |
| By: | Kent Smetters |
| Abstract: | Terrorist attacks worldwide during the past several years have spurned an interest in understanding not only how governments can mitigate terrorism risk but also how governments might help finance future losses. This interest was buttressed by the seemingly failure of the private insurance market to provide coverage for terrorism losses after the attack on September 11, 2001. This paper surveys the evidence of the supposed private market failures after 9/11 and the arguments for government provision of terrorism insurance. The paper argues that mostly unfettered insurance and capital markets are capable of insuring large terrorism losses. If there is any "failure," it rests with government tax, accounting, and regulatory policies that have made it costly for insurers to hold surplus capital. Government policy has also hindered the implementation of instruments that could securitize the underlying risks. Correcting these policies would likely enable private insurers to cover both terrorism and war risks. |
| JEL: | H0 H2 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11038&r=ias |