nep-ias New Economics Papers
on Insurance Economics
Issue of 2006‒05‒13
seven papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Willingness to Pay for Low Probability, Low Loss Hazard Insurance By John C. Whitehead
  2. The Effects of Health on Health Insurance Status in Fragile Families By Hope Corman; Anne Carroll; Kelly Noonan; Nancy E. Reichman
  3. Redistribution by Insurance Market Regulation: Analyzing a Ban on Gender-Based Retirement Annuities By Amy Finkelstein; James Poterba; Casey Rothschild
  4. Endogenous Information and Privacy in Automobile Insurance Markets By Lilia Filipova
  5. The Effects of State Medicaid Policies on the Dynamic Savings Patterns of the Elderly By Lara Gardner; Donna Gilleskie
  6. Sophisticated Discipline in Nascent Deposit Markets: Evidence from Post-Communist Russia By Alexei Karas; William Pyle; Koen Schoors
  7. Intensive Medical Care and Cardiovascular Disease Disability Reductions By David M. Cutler; Mary Beth Landrum; Kate A. Stewart

  1. By: John C. Whitehead
    Abstract: We estimate the willingness to pay for low probability, low loss hazard insurance with the contingent valuation method. The application is to household hurricane evacuation cost insurance – a new product for which there is currently no market. We find that a majority of respondents would not purchase the product at even the lowest price. In general, respondents are rational in response to the probability and costs of a evacuation. Respondents are not likely to pay anything for evacuation cost insurance.
    Date: 2006
  2. By: Hope Corman; Anne Carroll; Kelly Noonan; Nancy E. Reichman
    Abstract: We use data from the Fragile Families and Child Wellbeing study to estimate the effects of poor infant health, pre-pregnancy health conditions of the mother, and the father's health status on health insurance status of urban, mostly unmarried, mothers and their one-year-old children. Virtually all births were covered by health insurance, but one year later about one third of mothers and over 10 percent of children were uninsured. We separately examine births that were covered by public insurance and those that were covered by private insurance. The child's health status had no effect, for the most part, on whether the mother or child became uninsured. For publicly insured births, a maternal physical health condition made it less likely that both the mother and child became uninsured, while maternal mental illness made it more likely that both the mother and child lost insurance coverage. For privately insured births, the father's suboptimal physical health made it more likely that the mother, but not the child, became uninsured.
    JEL: I1 I3
    Date: 2006–05
  3. By: Amy Finkelstein; James Poterba; Casey Rothschild
    Abstract: This paper shows how models of insurance markets with asymmetric information can be calibrated and solved to yield quantitative estimates of the consequences of government regulation. We estimate the impact of restricting gender-based pricing in the United Kingdom retirement annuity market, a market in which individuals are required to annuitize tax-preferred retirement savings but are allowed considerable choice over the annuity contract they purchase. After calibrating a lifecycle utility model and estimating a model of annuitant mortality that allows for unobserved heterogeneity, we solve for the range of equilibrium contract structures with and without gender-based pricing. Eliminating gender-based pricing is generally thought to redistribute resources from men to women, since women have longer life expectancies. We find that allowing insurers to offer a menu of contracts may reduce the amount of redistribution from men to women associated with gender-blind pricing requirements to half the level that would occur if insurers were required to sell a single pre-specified policy. The latter "one policy" scenario corresponds loosely to settings in which governments provide compulsory annuities as part of their Social Security program. Our findings suggest that recognizing the endogenous structure of insurance contracts is important for analyzing the economic effects of insurance market regulations. More generally, our results suggest that theoretical models of insurance market equilibrium can be used for quantitative policy analysis, not simply to derive qualitative findings.
    JEL: D82 H55 L51
    Date: 2006–05
  4. By: Lilia Filipova (University of Augsburg, Department of Economics)
    Abstract: This paper examines the implications of insurers’ offering a voluntary monitoring technology to insureds in automobile insurance markets with adverse selection and without commitment. Under the consideration of the inherent costs related to the loss of privacy, the paper analyzes the incentives of insureds to reveal information, whereby they can decide how much or what quality of information to reveal. It is also allowed for the possibility that high risk individuals might mimic low risk individuals. The resulting market equilibrium is characterized and it is shown, that it will never be optimal for insureds to reject the monitoring technology and that under certain conditions, which are specified in the paper, it will be optimal for them to reveal complete information. Concerning the welfare effects both low risk and high risk individuals will always be better off. Unless it is optimal for individuals to reveal complete information, an all-or-nothing nature of the monitoring technology will not be efficient.
    Keywords: adverse selection, privacy, insurance, risk classification, endogenous information acquisition
    JEL: D82 G22
    Date: 2006–05
  5. By: Lara Gardner; Donna Gilleskie
    Abstract: States have considerable flexibility in determining Medicaid policies such as financial eligibility criteria, subsidies for home- and community-based services, and reimbursements rates to skilled nursing facilities, among other things. An understanding of how differences in Medicaid programs across states and time affect the elderlys' demand for Medicaid coverage of long-term care is necessary for evaluating future changes in the Medicaid program structure. We use data from the 1993, 1995, 1998, and 2000 waves of the Asset and Health Dynamics of the Elderly and variation in state Medicaid policies over time to estimate our dynamic framework capturing the sequential asset and gift decisions that determine eligibility for Medicaid. We also model the long-term care decisions of married and single individuals conditional on endogenous insurance coverage and health transitions. To control for the impact of unobserved heterogeneity in all outcomes, the structural equations of the empirical model are estimated jointly, allowing for correlation in the error structure across equations and over time. In this paper we focus on the asset and gifting decisions of the elderly over time. We find that many of the Medicaid policy variables that differ across states have a significant but small effect on the savings decisions of the elderly, with single elderly individuals exhibiting more response than married elderly individuals.
    JEL: I1 I3
    Date: 2006–05
  6. By: Alexei Karas; William Pyle; Koen Schoors
    Abstract: In nascent markets with relatively immature institutions, do depositors have the capacity to discipline banks with poor fundamentals? If so, what information specifically guides their response? Using a database from post-communist, pre-deposit-insurance Russia, we present evidence for quantity-based sanctioning of weaker banks by both firms and households, particularly after the 1998 financial crisis. More notably, the discipline that we observe is surprisingly sophisticated. Specifically, our evidence is consistent with the proposition that depositors interpret a bank’s deposit rate and capital as jointly reflecting its subsequent stability. In estimating a deposit supply function, we show that, particularly for poorly capitalized banks, interest rate increases run into diminishing, and eventually negative, returns in terms of deposit attraction.
    Keywords: banking, market discipline
    JEL: G21 O16 P2
    Date: 2006–07
  7. By: David M. Cutler; Mary Beth Landrum; Kate A. Stewart
    Abstract: There is little empirical evidence to explain why disability declined among the elderly over the past 20 years. In this paper, we explore the role of improved medical care for cardiovascular disease on health status improvements over time. We show that the incidence of cardiovascular disease hospitalizations remained relatively constant between 1984 and 1999 at the same time that post-event survival improved and disability declined. We find that use of appropriate therapies, including pharmaceuticals such as beta-blockers, aspirin, and ace-inhibitors, and invasive procedures, explains up to 50% and 70% of the reductions in disability and death over time, respectively. Elderly patients living in regions with high use of appropriate medical therapies had better health outcomes than patients living in low-use areas. Finally, we estimate that preventing disability after an acute event can add as much as 3.7 years of quality-adjusted life expectancy, or $316,000 of value.
    JEL: I1 J1
    Date: 2006–05

This nep-ias issue is ©2006 by Soumitra K Mallick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.