nep-ias New Economics Papers
on Insurance Economics
Issue of 2008‒12‒01
nine papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Private Health Insurance in Canada By Jeremiah Hurley; Emmanuel Guindon
  2. Securitizing peanut production risk with catastrophe (CAT) bonds By Epperson, James E.
  3. Index Insurance and Common Property Pastures By Haimanti Bhattacharya; Dan Osgood
  4. Job Search and Unemployment Insurance: New Evidence from Time Use Data By Alan B. Krueger; Andreas Mueller
  6. Do firms provide wage insurance against shocks? - Evidence from Hungary. By Gábor Kátay
  7. What do distortion risk measures tell us on excess of loss reinsurance with reinstatements ? By Antonella Campana; Paola Ferretti
  8. Entlohnung und Regulierung unabhängiger Versicherungsvermittler By Richter, Andreas; Schiller, Jörg
  9. Inequity in a market-based health system: evidence from Canada's dental sector By Michel Grignon; Jeremiah Hurley; Li Wang; Sara Allin

  1. By: Jeremiah Hurley (Department of Economics, Centre for Health Economics and Policy Analysis, McMaster University); Emmanuel Guindon (Centre for Health Economics and Policy Analysis, McMaster University)
    Abstract: Although a majority of Canadians hold some form of private health care insurance -- most commonly obtained as an employment benefit -- private insurance finances only 12% of health care expenditures in Canada and its financing role is essentially limited to complementary coverage for services not covered by public insurance programs. Private supplementary insurance for services covered by the public insurance system does not exist in Canada. This limited role for private insurance in health care reflects the core policy vision for health care financing in Canada, which emphasizes equal access to medically necessary health care, especially physician and hospital services. Compared to many other countries, Canada’s private health insurance market is relatively uncomplicated, viewed in terms of either the products offered or the regulations imposed. Although Canadians regularly debate the relative split between public and private finance overall, and a small set of advocates have persistently pressed for a greater role for private insurance, private insurance has not figured prominently in Canada’s health care policy debates, which since the late 1960s have focused on the publicly funded health care system. Three Canadian health care policy challenges, however, are drawing the role of private health insurance into the centre of policy debate. The first has been the emergence in the last ten years of long wait times for some common, high-profile services such as orthopaedic surgery, eye surgery, diagnostic imaging, and cancer treatments. These wait times have fuelled advocates for parallel private finance alongside public insurance and for loosening restrictions on supplementary private insurance. Such advocates were emboldened by a landmark 2005 Supreme Court of Canada ruling (Chaoulli vs. Government of Quebec) that, in the presence of excessive wait times in the public system, Quebec’s statute prohibiting private insurance for publicly insured services violated Quebec’s Charter of Rights. Though the ruling has only narrow application to Quebec, the judgement has given momentum to those advocating for a fundamental change in the role of private insurance in Canadian health care. The second element drawing private insurance into the centre of policy debate is the growing importance of pharmaceuticals in the modern pantheon of medically necessary therapies. Prescription drugs are excluded from the core services covered by Canadian Medicare, so the majority of pharmaceutical costs are privately financed. Many Canadians, however, are either uninsured or underinsured for prescription drugs. This has prompted many to call for an expansion of public financing for prescription drugs (National Forum on Health 1997;Commission on the Future of Health Care in Canada 2002;Senate of Canada 2002). Some proposals call for full public coverage that would supplant the currently large role of private insurance in this sector; others, call for various types of public-private partnerships to ensure universal coverage. All of them force the question of the desired role for private insurance in this increasingly important and expensive sector of health care. Finally, policy makers and system analysts increasingly appreciate the interactions between the publicly and privately financed components of the overall health care system. Unequal access to privately insured services can lead to unequal access to and use of publicly insured services. Both Stabile ( 2001) and Allin and Hurley ( 2008), for instance, find that other things equal, those with private drug insurance use more publicly financed physician services (an effect unlikely to be driven by selection. This type of evidence prompts hard questions regarding the scope of policies necessary to achieve objectives set for the publicly financed health system. This chapter reviews the role of private health insurance in Canada. It begins with a brief overview of the Canadian health care system; considers the historical path that led to the current role for private health insurance; examines the current market for private health insurance; assesses the evidence for how private insurance contributes to or detracts from health financing goals; and offers some concluding comments on private health insurance in Canada.
    Date: 2008
  2. By: Epperson, James E.
    Abstract: A catastrophe (CAT) bond is designed for peanut production as a means of transferring natural disaster risks from insurance purveyors to the global capital market. The CAT bond so designed is priced using state-level historical yields for peanut production in the southern part of the United States in the State of Georgia. The index triggering the CAT bond contract was based on percent deviation from state average yield. The principal finding of the study is that it appears feasible for crop insurance purveyors to issue insurance-linked securities. CAT bonds can reduce the variance of the loss ratio when issued optimally with regard to the number of bonds and contract specifications. CAT bonds could therefore be used in hedging catastrophic risk effectively in peanut production given that crop insurance purveyors normally seek to minimize the variance of the loss ratio. CAT bonds were found to be feasible as hedging instruments even in the range of normal losses commonly covered by crop insurance and reinsurance.
    Keywords: Insurance, Reinsurance, Pricing, Hedging, Agricultural Finance, Crop Production/Industries, Risk and Uncertainty,
    Date: 2008–10–31
  3. By: Haimanti Bhattacharya; Dan Osgood
    Abstract: This paper presents a theoretical model to investigate the potential environmental consequences of weather index based insurance, a tool for mitigating weather risk that is gaining momentum in developing countries. We model potential effects of index insurance for pastoralists on animal stocking decisions and the resulting effects on common property resource quality. We find that although this proposed financial tool has the potential of significantly enhancing the welfare of pastoralists by enhancing expected payoffs and reducing the exit of pastoralists, under certain conditions the insurance can worsen overstocking problems in low rainfall states of nature. In these cases, the insurance has an unintended negative effect on pasture quality that can undermine the long run sustainability of the common pool resource. Model extensions show that low error seasonal climate forecasts and/or reduction in ex-post stock readjustment costs arising from market imperfections can help in mitigating this potential negative effect.
    Keywords: : Index Insurance, Pasture, Common Property
    JEL: G2 O13 P14
    Date: 2008
  4. By: Alan B. Krueger (Princeton University and NBER); Andreas Mueller (Stockholm University and Princeton University)
    Abstract: This paper provides new evidence on job search intensity of the unemployed in the U.S., modeling job search intensity as time allocated to job search activities. The main findings are: 1) the average unemployed worker in the U.S. devotes about 41 minutes to job search on weekdays, which is substantially more than his or her European counterpart; 2) workers who expect to be recalled by their previous employer search substantially less than the average unemployed worker; 3) across the 50 states and D.C., job search is inversely related to the generosity of unemployment benefits, with an elasticity between -1.6 and -2.2; 4) the predicted wage is a strong predictor of time devoted to job search, with an elasticity in excess of 2.5; 5) job search intensity for those eligible for Unemployment Insurance (UI) increases prior to benefit exhaustion; 6) time devoted to job search is fairly constant regardless of unemployment duration for those who are ineligible for UI. A nonparametric Monte Carlo technique suggests that the relationship between job search effort and the duration of unemployment for a cross-section of job seekers is only slightly biased by length-based sampling.
    Keywords: unemployment, unemployment insurance, job search, time use, unemployment benefits, inequality
    JEL: J64 J65
    Date: 2008–08
  5. By: Renaud Bourlès (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales - CNRS : UMR6579)
    Abstract: This paper examines the effect of moral hazard on dynamic insurance contract. It models primary prevention in a two period model with classification risk. Agents' preferences appear to play an important role in the determination of preventive effort and prepayment. If absolute prudence is larger that absolute risk aversion, moral hazard increases prepayment of premium and classification risk. This highlights a tradeoff between prevention and prepayment that arises from the classification risk. An increase in the difference between prudence and twice risk aversion (that we define as the degree of foresight) moreover makes dynamic insurance contracts more stable (when competing with spot insurance) if the cost of prevention is low enough when agents preferences exhibit CRRA. Under a formulated utility function with linear reciprocal derivative, we finally show that an increase in agents' degree of foresight enhances the stability of dynamic contract and the extent of prepayment.
    Keywords: Dynamic Insurance, Classification Risk, Moral Hazard, Prudence
    Date: 2008–11–22
  6. By: Gábor Kátay (Department of Economics, Magyar Nemzeti Bank, 1850 Budapest, Szabadság tér 8-9, Hungary.)
    Abstract: In this paper I address the question to what extent wages are affected by product market uncertainty. Implicit contract models imply that it is Pareto optimal for risk neutral firms to provide insurance to risk averse workers against shocks. Using matched employer-employee dataset, I adopted the estimation strategy proposed by Guiso et al. (2005) to evaluate wage responses to both permanent and transitory shocks in Hungary and compared my results to similar studies on Italian and Portuguese datasets. I found that firms do insure workers against product market uncertainties, but the magnitude of the wage response differs depending on the nature of the shock. Broadly speaking, the wage response to permanent shocks is twice as high as the response to transitory shocks. Comparing my results to the two other studies, the main difference lies in the elasticity of wages to transitory shocks. Unlike these previous findings, my results show that full insurance to transitory shocks is rejected. JEL Classification: C33, D21, J33, J41.
    Keywords: product market uncertainty, risk sharing, wage insurance, optimal wage contract, matched employer-employee data.
    Date: 2008–11
  7. By: Antonella Campana (Department SEGeS, University of Molise); Paola Ferretti (Department of Applied Mathematics, University of Venice)
    Abstract: In this paper we focused our attention to the study of an excess of loss reinsurance with reinstatements, a problem previously studied by Sundt [5] and, more recently, by Mata [4] and HÄurlimann [3]. As it is well-known, the evaluation of pure premiums requires the knowledge of the claim size distribution of the insurance risk: in order to face this question, different approaches have been followed in the actuarial literature. In a situation of incomplete information in which only some characteristics of the involved elements are known, it appears to be particularly interesting to set this problem in the framework of risk adjusted premiums. It is shown that if risk adjusted premiums satisfy a generalized expected value equation, then the initial premium exhibits some regularity properties as a function of the percentages of reinstatement.
    Keywords: Excess of loss reinsurance, reinstatements, distortion risk measures, expected value equation
    JEL: G22
    Date: 2008–11
  8. By: Richter, Andreas; Schiller, Jörg
    Abstract: Unabhängige Vermittler erbringen im Rahmen Ihrer Tätigkeiten wichtige Dienstleistungen für Versicherungsunternehmen und Versicherungsnehmer. Zum einen soll für Versicherungsnehmer in vielen Bereichen passender Versicherungsschutz besorgt werden (Produktauswahl). Darüber hinaus können Vermittler im Rahmen ihrer Beratung zum Teil wichtige risikorelevante Umstände von Versicherungsnehmern beobachten, die Versicherungsunternehmen zu Berechnung adäquater Prämien benötigen (Risikoklassifikation). Ziel des Beitrages ist es, die Auswirkungen unterschiedlicher Entlohnungssysteme für unabhängige Versicherungsvermittler auf zentrale Marktfunktio-nen zu untersuchen. Darüber hinaus soll eingehender analysiert werden, inwieweit die Neuregelungen zum Vermittlerrecht in Deutschland dazu geeignet sind, die Beratungsqualität bzw. Effizienz der Intermediation durch unabhängige Vermittler im Bereich komplexer Risiken zu erhöhen.
    Keywords: insurance intermediation; compensation; regulation
    JEL: G22 G24
    Date: 2008–11–18
  9. By: Michel Grignon (Department of Economics, Centre for Health Economics and Policy Analysis, Department of Health, Aging and Society, McMaster University); Jeremiah Hurley (Department of Economics, Centre for Health Economics and Policy Analysis, Department of Clinical Epidemiology and Biostatistics, McMaster University); Li Wang (Centre for Health Economics and Policy Analysis, Department of Clinical Epidemiology and Biostatistics, McMaster University); Sara Allin (London School of Economics and Political Science, European Observatory on Health Systems and Policies)
    Abstract: We study the extent and drivers of income-related inequity in utilization of dental services in Canada using the concentration-index approach that has been widely applied to study equity in physician and hospital services. Because dental care is almost wholly privately financed in Canada, our estimates provide a benchmark for income-related inequity of utilization in private health systems. Although a number of studies document a link between income and utilization, our study is one of the few measuring income-related inequity in dental care utilization. A unique feature of our study is that we analyze separately equity in total dental visits and in preventive visits. This is important because the case for equity is much clearer for preventive dental care. We also examine the impact of controlling for need using a wider variety of need indicators than previous analyses. We confirm that most oral health indicators perform poorly as need adjustors because they reflect past dental care use: individuals with higher levels of utilization also are in better oral health. Our most important finding is that access to preventive care is the most pro-rich type of dental care utilization and that income-related inequity in preventive dental care utilization is three times larger than what is measured for specialist services utilization in Canada.
    Keywords: Canada, Equity, Dental care, Prevention
    Date: 2008

This nep-ias issue is ©2008 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.
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