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on Insurance Economics |
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Issue of 2008‒04‒21
five papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Bussiness Management |
| By: | Joe Chen (Faculty of Economics, University of Tokyo); Yun Jeong Choi (Faculty of Economics, University of Tokyo); Yasuyuki Sawada (Faculty of Economics, University of Tokyo) |
| Abstract: | In this paper, we investigate the nexus between life insurance and suicide behavior using OECD cross-country data from 1980 to 2002. Through semiparametric instrumental variable regressions with fixed effects, we find that for the majority of observations, there exists a positive relationship between suicide rate and life insurance density (premium per capita). Since life insurance policies pay death benefits even in suicide cases after the suicide exemption period, the presence of adverse selection and moral hazard suggests an incentive effect that leads to this positive relationship. The novelty of our analysis lies in the use of cross-country variations in the length of the suicide exemption period in life insurance policies as the identifying instrument for life insurance density. Our results provide compelling evidence suggesting the existence of adverse selection and moral hazards in life insurance markets in OECD countries. |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2008cf558&r=ias |
| By: | Toshihiro Ihori (Faculty of Economics, University of Tokyo); Martin McGuireb (Department of Economics, University of California-Irvine) |
| Abstract: | This paper concerns self-insurance and self-protection that countries may implement at a national level in pursuit of their security. The distinctions self-insurance, self-protection, and market insurance were first made by Ehrlich and Becker (1972). Nevertheless, extension of their models to international security where market insurance for entire countries is usually unavailable is surprisingly sparse. We show that, in the absence of market insurance, self-insurance alone raises important new issues as to the definition of "fair pricing" and as to the relations between pricing, optimization, risk aversion, and inferiority that are significantly different from standard, conventional market analysis. We also discover a hitherto unrecognized tendency for misallocation between selfprotection and self-insurance when both are available and considered together. Because of external effects running from self- protection to self-insurance, governments trying to find the right balance face incentives that encourage extreme, self-inflicted moral hazard, to the detriment of self-protection. Moreover, rather innocuous assumptions concerning countries' preferences lead to pervasive goods inferiority for both insurance and protection. Consequently, unlike the conventional wisdom in the economic theory of alliances with its neat interior Nash-solutions, we show when "defense" or "security" is disaggregated into more realistic categories such as protection and insurance that instabilities and corner solutions will be the conventional standard. The resulting perverse incentives that we discover point to conflicts and other difficulties among agents trying to cooperate in their management insurance and protection must overcome. Moreover the analysis implies that the paradigm Olson-Zeckhauser model (1966) model for alliance allocative behavior was fundamentally insufficient for the problem it was designed to address. |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2008cf554&r=ias |
| By: | Karlström, Anders (Systems Analysis and Economics, Royal Institute of Technology); Palme, Mårten (Dept. of Economics, Stockholm University); Svensson, Ingemar (Social Insurance Agency) |
| Abstract: | We study the effect of a reform of the Swedish disability insurance (DI) program whereby the special eligibility rules for workers in the age group 60 to 64 were abolished. First, we use a differences-in-differences approach to study changes in the disability take-up as compared to the age group 55 to 59. Then, we use a similar approach to study to what extent the employment effect of the reform is "crowded out" by an increase in the utilization of the sickpay insurance (SI) and/or the unemployment insurance (UI). In an extended analysis, we study the effect of firm closure on employment and the utilization of different labor market insurance programs in different age groups before and after the reform. |
| Keywords: | Disability Insurance; Early Retirement |
| JEL: | H53 H55 H59 J21 J26 |
| Date: | 2008–04–11 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:sunrpe:2008_0003&r=ias |
| By: | Vodopivec, Milan (World Bank) |
| Abstract: | By simulating the working of the unemployment insurance savings accounts (UISAs) in Slovenia using a methodology similar to Feldstein and Altman (1998), the paper examines two questions: how viable is this system as an alternative to traditional unemployment insurance (UI) system, and how the redistribution of income changes if the UI system is replaced by UISAs. The simulations are performed on a representative sample of labor force participants, for which lifetime labor market histories are generated from administrative panel data. Simulations show that the UISA system is a viable alternative to a modest UI system, but that its viability is jeopardized under generous benefits. Under the modest regime (here identified with a post-1998 period, the period after the UI reform which strongly reduced the maximum potential duration of benefit, for most workers even by half) our calculations show that only one quarter of workers end their working life with negative cumulative balance and 43 percent ever experience a negative UISA balance; in contrast, under the generous regime (here identified with the pre-1998-reform period), 49 percent of workers end their working life with negative cumulative balance and 66 percent ever experience a negative balance. Moreover, under the modest benefit regime workers are better able to recover positive UISA balance. The simulations also show that the level of redistribution under the UISAs lags substantially behind the UI system, even though the version of the UISAs studied permits borrowing and hence allows for redistribution. |
| Keywords: | unemployment insurance, unemployment insurance savings accounts |
| JEL: | J65 C23 |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3438&r=ias |
| By: | Catherine Bruneau; Nadia Sghaier |
| Abstract: | This paper provides an empirical analysis of the presence and determinants of the underwriting cycle in non-life insurance for France for the industry and for two individual lines which one long and one short for the period 1963-2004 and 1982-2004. First, the estimation of the AR(2) process of the rate of growth of premiums shows the presence of a cyclical behavior since 80 for the aggregate sector and for the automobile line. Second, we aim to determine their causes. For that, we consider the amount of claims and expenses, equities and returns on financial assets. We adopt a multivariate approach and we estimate an error correction vector model that allows the distinction between the e¤ects of short and long term. We provide evidence of causality between different variables and we end with an impulse analysis. The empirical results that we get are interpreted with reference to principal hypothesis made in the literature to explain the cycle and financial model of insurance pricing. These results show that the causes vary across lines and periods. |
| Keywords: | Presence and determinants of the underwriting cycles, non life in-surance, error correction vectoriel model, causality, impulse analysis. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2008-6&r=ias |