nep-ias New Economics Papers
on Insurance Economics
Issue of 2008‒02‒16
ten papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Uncertain Bequest Needs and Long-Term Insurance Contracts By Wenan Fei; Claude Fluet; Harris Schlesinger
  2. How Does the Corporate World Cope with Mega-Terrorism? Puzzling Evidence from Terrorism Insurance Markets By Erwann Michel-Kerjan; Burkhard Pedell
  3. Towards an understanding approach of the insurance linked securities market. By Mathieu Gatumel; Dominique Guegan
  4. From Income to Consumption: Measuring Households Partial Insurance By José María Casado García
  5. Choice, Price Competition and Complexity in Markets for Health Insurance By Richard Frank; Karine Lamiraud
  6. Valuation of the surrender option in unit-linked life insurance policies in a non-rational behaviour framework By Luca Anzilli; Luigi De Cesare
  7. Dynamic Gains and Market Access Insurance: Another look at the AUSFTA By Richard G. Harris; Peter E. Robertson
  8. The Emergence of Cross-Border Insurance Groups within Europe with Centralised Risk Management By Otto Winkels; Dirk Schoenmaker; Sander Osterloo
  9. Effects of the New Cooperative Medical Scheme on village doctor’s prescribing behaviour in Shandong Province By Xiaoyun Sun; Sukhan Jackson; Gordon Carmichael; Adrian C. Sleigh
  10. Using participating and financial contracts to insure catastrophe risk: Implications for crop risk management By Geoffroy Enjolras; Robert Kast

  1. By: Wenan Fei; Claude Fluet; Harris Schlesinger
    Abstract: We examine how long-term life insurance contracts can be designed to incorporate uncertain future bequest needs. An individual who buys a life insurance contract early in life is often uncertain about the make up of his or her future family, much less their financial needs. Ideally, the individual would like to insure the risk of having high future bequest needs; but since bequest motives are typically unverifiable, a contract directly insuring these needs is not feasible. We derive two equivalent long-term life insurance contracts that are incentive compatible and achieve a higher welfare level than the naïve strategy of delaying the purchase of insurance until after one's bequest needs are known. We also examine the welfare effects of such contracts and we show how third-party financial products, although beneficial to the individual in the short run, can be welfare decreasing over one's lifetime.
    Keywords: Life insurance, Bequest needs, Asymmetric information
    JEL: D82 D91 G22
    Date: 2007
  2. By: Erwann Michel-Kerjan (PREG - Pole de recherche en économie et gestion - CNRS : UMR7176 - Polytechnique - X); Burkhard Pedell (University of Stuttgart -)
    Abstract: NA
    Date: 2007
  3. By: Mathieu Gatumel (Axa et Centre d'Economie de la Sorbonne); Dominique Guegan (Centre d'Economie de la Sorbonne et Paris School of Economics)
    Abstract: The paper aims to present the insurance linked securities market behaviour, that has changed a lot the past three years, both in terms of structure and in terms of ceded risks. After having introduced some stylized facts characterizing the insurance linked securities we capture their market price of risk, following the methodologies of Wang (2004), Lane (2000) and Fermat Capital Management (2005). A dynamical study of the insurance linked securities is also provided in order to understand the elements driving the spreads : the consequences of the catastrophic events, the seasonality and the diversification effects between some different risks are highlighted.
    Keywords: Insurance linked securities, cat. bonds, market price of risk.
    JEL: G10 G12 G14
    Date: 2008–01
  4. By: José María Casado García
    Abstract: This paper computes the degree of consumption insurance with respect to transitory and permanent income shocks for different households. The lack of income-consumption data in the US surveys forces researchers to use an empirical strategy to impute consumption. We avoid this procedure by using the Spanish Continuous Family Expenditure Survey that contains good quality income and consumption information in the same survey. We find full insurance for transitory income shocks and partial insurance for permanent shocks for some sub-groups. For the full sample, a 10 percent permanent income shock induces a 7.8 percent permanent change in consumption, with higher insurance capacity for home-owners and more educated households.
    Date: 2008–02
  5. By: Richard Frank; Karine Lamiraud
    Abstract: The United States and other nations rely on consumer choice and price competition among competing health plans to allocate resources in the health sector. A great deal of research has examined the efficiency consequences of adverse selection in health insurance markets, less attention has been devoted to other aspects of consumer choice. The nation of Switzerland offers a unique opportunity to study price competition in health insurance markets. Switzerland regulates health insurance markets with the aim of minimizing adverse selection and encouraging strong price competition. We examine consumer responses to price differences in local markets and the degree of price variation in local markets. Using both survey data and observations on local markets we obtain evidence suggesting that as the number of choices offered to individuals grow their willingness to switch plans given a set of price dispersion differences declines allowing large price differences for relatively homogeneous products to persist. We consider explanations for this phenomenon from economics and psychology.
    JEL: I11
    Date: 2008–02
  6. By: Luca Anzilli; Luigi De Cesare
    Abstract: In this article we propose a discrete time-based model for the evaluation of the surrender option implicit in a portfolio of single premium unit-linked life policies. We presume that the policyholders do not act rationally. Their behaviour is linked to the credibility of the insurance companies, to the analysis of the economic convenience of a rating agency, as well as to their personal needs for surrenders. In this paper we investigate the effects of a company's advertising campaign on the price of surrender options. The model was numerically implemented using the Cox et al. [Cox, J.C., Ross, S.A., Rubinstein, M., 1979. Option Pricing: A Simplified Approach. Journal of Financial Economics 7, 229-263] binomial model.
    Keywords: Surrender option, Unit-linked life insurance, Non-rational behaviour.
    JEL: C61 G13 G22
    Date: 2007–10
  7. By: Richard G. Harris (Department of Economics, Simon Fraser University); Peter E. Robertson (School of Economics, The University of New South Wales)
    Abstract: We use a dynamic computable general equilibrium model to revisit the dynamic benefits of the Australia-USA Free Trade Agreement and, in particular, to evaluate the insurance value of this agreement in the face of regional and global trade wars. The insurance benefits are quantified by comparing the status quo against alternative scenarios where some or all regions raise tariffs by 10 percent, both permanently and temporarily. These insurance gains are found to be as much as four times larger than the traditional status quo efficiency gains.
    Keywords: Trade policy; Computable General Equilibrium; Human Capital; Dynamics
    JEL: F15
    Date: 2007–07
  8. By: Otto Winkels; Dirk Schoenmaker; Sander Osterloo
    Abstract: This paper analyses the degree of internationalisation of insurance business. Using a novel dataset of 25 large EU insurance groups, we find that the insurance industry has a strong international orientation. About 55 per cent of the business of these large insurance groups is conducted abroad. The cross-border activities are predominantly within Europe (30 to 35 per cent) and less so in the rest of the world (20 to 25 per cent). Next, this paper examines the impact of internationalisation on the organisational structure. We find a clear trend towards centralising risk and capital management activities within large insurance groups, though insurance remains at the same time a local business. Applying the hub and spoke model, we identify which functions are executed at the centre (hub) and which functions are performed at the local business units (spokes).
    Date: 2007–12
  9. By: Xiaoyun Sun; Sukhan Jackson; Gordon Carmichael; Adrian C. Sleigh (School of Economics, The University of Queensland)
    Abstract: Objective: To assess the effects of China’s new community health insurance, the New Cooperative Medical Scheme (NCMS), on village doctors’ prescribing behaviour. NCMS began in 2003. Method, In 2005 we conducted a quasi-experimental case-control study in Shandong Province, and collected information from 2,271 patient visits in 30 village health stations. Results, NCMS has adversely influenced prescribing behaviour of village doctors. Average number of drugs prescribed, percentage of prescriptions containing antibiotics, number of antibiotics per prescription, percentage of patients given injections, and average per prescription cost were consistently higher in NCMS village health stations than non-NCMS. Within NCMS villages, prescribing behaviour towards insured patients was significantly different to the uninsured. Conclusion, Over-prescribing is common in villages with and without health insurance, with grave concerns for service quality and drug-use safety. Policy implications are NCMS should be redesigned to exert more influence on health providers, with incentives for cost containment and service quality. Stricter regulatory environment for prescriptions is necessary to counter irrational drug-use and ensure people’s access to effective care at reasonable cost.
    Date: 2008
  10. By: Geoffroy Enjolras; Robert Kast
    Abstract: This paper proposes a combination of participating and financial contracts in order to hedge catastrophic risk. Assuming unfair policies and the existence of a basis risk, we prove the optimal coverage is realized using: first, a participating contract, which covers the idiosyncratic part of the risk under a variable premium; second, a financial contract, which hedges the systemic part of the risk under a fixed premium. The necessary intermediation of insurance companies in the conception of such contracts is emphasized as well as the impact of unfair premia. From then, potential implications for crop risk management are examined.
    Date: 2007–01

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