nep-ias New Economics Papers
on Insurance Economics
Issue of 2008‒03‒15
eight papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Risks and Regulation of Insurance Companies. Is Solvency II the Right Answer? By Benjamin Lorent
  2. Managing increasing environmental risks through agro-biodiversity and agri-environmental policies By Stefan Baumgärtner; Martin F. Quaas
  3. Does a mandatory telemedicine call prior to visiting a physician reduce costs or simply attract good risks? By Chantal Grandchamp; Lucien Gardiol
  4. Determinants of Voluntary Adoptions of Unemployment Insurance By Salazar, C
  5. Migration, Risk and the Intra-Household Allocation of Labor in El Salvador By Halliday, Timothy
  6. Fiscal Insurance and Debt Management in OECD Economies By Albert Marcet; Elisa Faraglia; Andrew Scott
  7. Risk Sharing and Commuting Among US Federal States By Juessen, Falko
  8. Incentive Contracts and Efficient Unemployment Benefits By Dominique Demougin; Carsten Helm

  1. By: Benjamin Lorent (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels.)
    Abstract: The role of insurance sector has grown in importance. While there is a plethora of academic literature on the needs for a banking regulation, literature on insurance regulation is scarce and mainly focused on asymmetry issues. In this paper, we describe the reasons for an insurance regulation. Recent developments faced by insurers modified the risks encountered by the sector, especially liquidity risk and systemic risk. The purpose of the discussion presented here is also to outline the specificities of the new framework for the regulation of European insurance undertakings, Solvency II, as it is currently discussed to provide an appropriate response to the changing needs of insurance regulation. Our analysis leads us to conclude that Solvency II answers well to the developing insurance sector. However, caution is warranted for some areas such as evaluation of embedded options and guarantees, risk transfer and financial conglomerates.
    Keywords: Insurance, Regulation, Solvency II, Liquidity risk, Systemic risk
    JEL: G20 G22 G28
    Date: 2008–02
  2. By: Stefan Baumgärtner (Centre for Sustainability, Leuphana University of Lüneburg); Martin F. Quaas (Department of Ecological Modelling, UFZ-Centre for Environmental Research Leipzig-Halle)
    Abstract: Agro-biodiversity can provide natural insurance to risk-averse farmers by reducing the variance of crop yield, and to society at large by reducing the uncertainty in the provision of public-good ecosystem services such as e.g. CO2 storage. We analyze the choice of agro-biodiversity by risk-averse farmers who have access to financial insurance, and study the implications for agri-environmental policy design when on-farm agro-biodiversity generates a positive risk externality. While increasing environmental risk leads private farmers to increase their level of on-farm agro-biodiversity, the level of agro-biodiversity in the laissez-faire equilibrium remains ineciently low. We show how either one of two agri-environmental policy instruments can cure this risk-related market failure: an ex-ante Pigouvian subsidy on on-farm agro-biodiversity and an ex-post compensation payment for the actual provision of public environmental benefits. In the absence of regulation, welfare may increase rather than decrease with increasing environmental risk, if the agroecosystems is characterized by a high natural insurance function, low costs and large external benefits of agro-biodiversity.
    Keywords: agro-biodiversity, ecosystem services, agri-environmental policy, insurance, risk-aversion, uncertainty
    JEL: Q1 Q57 H23 D62
    Date: 2008–03
  3. By: Chantal Grandchamp; Lucien Gardiol
    Abstract: This paper aims to estimate empirically the efficiency of a Swiss telemedicine service introduced in 2003. We used claims' data gathered by a major Swiss health insurer, over a period of six years and involving 160 000 insured adults. In Switzerland, health insurance is mandatory, but everyone has the option of choosing between a managed care plan and a fee-for-service plan. The present paper focuses on a conventional fee-for-service plan including a mandatory access to a telemedicine service; the insured are obliged to phone this medical call centre prior to visiting a physician. This type of plan generates much lower average health expenditures than a conventional insurance plan. Reasons for this may include selection, incentive effects or simply efficiency. In our sample, about 90% of the difference in health expenditure can be explained by selection and incentive effects. The remaining 10% of savings due to the efficiency of the telemedicine service amount to about SFr 150 per year per insured, of which approx. 60% is saved by the insurer and 40% by the insured. While the plan is cost-effective, the big winners are the insured who not only save monetary and non-monetary costs, but also benefit from reduced premiums.
    Keywords: health, insurance, selection, efficiency, telemedicine
    JEL: I11 D12 C21
    Date: 2008–03
  4. By: Salazar, C
    Abstract: The aim of this paper is to present evidence of the main factors that influence the voluntary decision of the assurance of unemployment in Chile. To carry out this purpose, a model Logit Binomial was estimated using information of the Survey of Socioeconomic Characterization (CASEN) 2003. The results support some theoretical arguments that influence this type of decisions. The individuals who present smaller probability of taking an insurance are workers with an educational low level and without formal training, individuals in advanced age, individuals with fewer family responsibilities, with a major seniority, individuals who can generate another type of income, workers who receive a major level of social assistance, workers who belong to the micro and small enterprise and those that work in Transport and Communications and Commercial Sector. These results are interesting, because the persons that have some of these characteristics could confront larger unemployment risk. In this context, it is necessary the intervention of the authority across incentives or forcing to the people to take insurance in order that the more vulnerable persons adopt this mechanism for social protection.
    Keywords: Assurance of Unemployment; Unemployment; Voluntary Affiliation.
    JEL: J65 J64 J68
    Date: 2007–09
  5. By: Halliday, Timothy (University of Hawaii at Manoa)
    Abstract: We use panel data from El Salvador and investigate the intra-household allocation of labor as a risk-coping strategy. Adverse agricultural productivity shocks both increased male migration to the US and male agricultural labor supply. This is not a contradiction if there were non-monotonic effects on shadow wages within the survey period. In contrast, damage sustained from the 2001 earthquakes exclusively stunted female migration. This is consistent with the earthquakes increasing the demand for home production.
    Keywords: migration, labor supply, insurance, intra-household allocation
    JEL: J22 J61
    Date: 2008–01
  6. By: Albert Marcet; Elisa Faraglia; Andrew Scott
    Abstract: Assuming the role of debt management is to provide hedging against fiscal shocks we consider three questions: i) what indicators can be used to assess the performance of debt management? ii) how well have historical debt management policies performed? and iii) how is that performance affected by variations in debt issuance? We consider these questions using OECD data on the market value of government debt between 1970 and 2000. Motivated by both the optimal taxation literature and broad considerations of debt stability we propose a range of performance indicators for debt management. We evaluate these using Monte Carlo analysis and find that those based on the relative persistence of debt perform best. Calculating these measures for OECD data provides only limited evidence that debt management has helped insulate policy against unexpected fiscal shocks. We also find that the degree of fiscal insurance achieved is not well connected to cross country variations in debt issuance patterns. Given the limited volatility observed in the yield curve the relatively small dispersion of debt management practices across countries makes little difference to the realised degree of fiscal insurance.
    Date: 2007–10–09
  7. By: Juessen, Falko (University of Dortmund)
    Abstract: Financial markets provide imperfect insurance of labor income risk. However, workers can partly insure against labor market risk by commuting to adjacent regions. Since commuters own wage claims to output produced in adjacent regions, the business cycle in the neighborhood becomes a relevant risk factor at the regional level. In our empirical analysis for US states, we show this effect to be important. State-specific consumption comoves with business cycle shocks that hit adjacent states, in particular if a state is integrated by commuter flows. This labor market perspective on regional risk sharing complements previous studies that investigated risk sharing through financial markets.
    Keywords: risk sharing, consumption smoothing, commuting, labor market risk
    JEL: E21 C33 R20
    Date: 2008–02
  8. By: Dominique Demougin (European Business School, Wiesbaden); Carsten Helm (Institut für Volkswirtschaftslehre (Department of Economics), Technische Universität Darmstadt (Darmstadt University of Technology))
    Abstract: Several European countries have reformed their labor market institutions. Incentive effects of unemployment benefits have been an important aspect of these reforms. We analyze this issue in a principal-agent model, focusing on unemployment levels and labor productivity. In our model, a higher level of unemployment benefits improves the workers' position in wage bargaining, leading to stronger effort incentives and higher output. However, it also reduces incentives for labor market participation. Accordingly, there is a trade-off. We analyze how changes in the economic environment such as globalization and better educated workers affect this trade-off.
    Keywords: Unemployment benefits, incentive contracts, Nash bargaining, moral hazard, globalisation.
    JEL: J65 D82 J41 E24
    Date: 2008–03

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