nep-ias New Economics Papers
on Insurance Economics
Issue of 2009‒01‒10
five papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Charakteristics and significance of the sum insured in the Czech Republic By Přečková, Lenka
  2. Improving Risk Adjustment in the Czech Republic By Radovan Chalupka
  3. Insurance policies for monetary policy in the euro area By Keith Kuester; Volker Wieland
  4. Rural finance reform in China By Chen Xiang Liu
  5. Higher Education and Health Investments: Does More Schooling Affect Preventive Health Care Use? By Jason M. Fletcher; David Frisvold

  1. By: Přečková, Lenka
    Abstract: The sum insured of insured assets is one of the basic significant characteristics of insurance policy quality and is the ceiling amount of insurance benefit in the case of an insured loss. It is one of the parameters specified in the policy and affects the premium amount. The sum insured relates to the insured value of the asset. It is the highest possible loss which can occur to an insured loss and it is decisive for determining the sum insured. The policy holder determines the sum insured so that it corresponds to the insured value of the insured asset at the time of insurance policy signing. The policy holder is fully liable for setting the sum insured. The aim of this paper was to analyze the quality of the underwritten insurance according to the determined sum insured. Source data for the paper included critical analysis of literature based on valid Czech legislation and on general terms and conditions of insurance of individual insurance companies. The paper contains an analysis and comparison of types of insured values of assets for insurance needs on the Czech insurance market. An induction method applied to a real-life insurance case was used for explanation of the relationship between the sum insured and paid-out insurance benefit. The paper clarifies the significance and characteristics of the sum insured in the Czech Republic. The conclusion is that viewing insurance only from the angle of the premium amount is completely incorrect. Savings on the premium at the expense of reduction of the sum insured implies a risk of not renewing company operations or a living in a family house in case of an insured loss.
    Keywords: insured value; sum insured; insurance benefit; under-insurance; over-insurance
    JEL: G22
    Date: 2008–05
  2. By: Radovan Chalupka (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: This paper analyses possible options how to improve the risk adjustment of the health insurance system in the Czech Republic. Out of possible options it argues for including Pharmaceutical Cost Groups (PCGs) as additional risk factors since it is an improvement that can be implemented almost instantaneously. On real data from an anonymous sickness fund it confirms that predictive performance of PCGs models is consistently better than the performance of the demographic model that is currently used. The study also describes and examines the Czech health insurance market and implications of proposed changes of the current government. Based on experience from other countries we point to a problem of risk selection if the changes are not accompanies by a tighter regulation, specifically in the form of improved risk adjustment formula.
    Keywords: Risk adjustment, Managed competition, Health insurance, Pharmaceutical Cost Groups, Czech Republic
    JEL: C10 D82 G22 I10 I11 I18
    Date: 2009–01
  3. By: Keith Kuester; Volker Wieland
    Abstract: In this paper, the authors aim to design a monetary policy for the euro area that is robust to the high degree of model uncertainty at the start of monetary union and allows for learning about model probabilities. To this end, they compare and ultimately combine Bayesian and worst-case analysis using four reference models estimated with pre-EMU synthetic data. The authors start by computing the cost of insurance against model uncertainty, that is, the relative performance of worst-case or minimax policy versus Bayesian policy. While maximum insurance comes at moderate costs, they highlight three shortcomings of this worst-case insurance policy: (i) prior beliefs that would rationalize it from a Bayesian perspective indicate that such insurance is strongly oriented toward the model with highest baseline losses; (ii) the minimax policy is not as tolerant of small perturbations of policy parameters as the Bayesian policy; and (iii) the minimax policy offers no avenue for incorporating posterior model probabilities derived from data available since monetary union. Thus, the authors propose preferences for robust policy design that reflect a mixture of the Bayesian and minimax approaches. They show how the incoming EMU data may then be used to update model probabilities, and investigate the implications for policy. ; Forthcoming in the Journal of the European Economic Association.
    Date: 2008
  4. By: Chen Xiang Liu
    Abstract: China’s current financial structure does not give sufficient support to rural areas, leaving many farmers and rural businesses without the capital they need to develop. Rural finance is the weakest point in the country’s entire financial system. Low profits for rural financial institutions, a lack of rural financial products and services and the difficulty many farmers experience in securing loans are the main problems plaguing the rural financial system. Accelerating rural financial reform and making it easier for rural people to access capital are key parts of the country’s effort to reform its overall financial system, to resolve “Three Rural Issues (San Nong)(1)” (Agriculture, Countryside, Farmers), and to create “new socialist countryside”. The main objectives of this paper are to (i) examine the current status of rural finance’s demand and supply and identify existing issues and constraints; (ii) evaluate ongoing rural financial reform and explore suitable roadmaps to develop a well-functioning and sustainable rural finance system, which would address the diverse needs of “new socialist countryside” construction. (1) San nong literally means three “nong”. The word “nong” in Chinese is combined with other words to form phrases such as nongye (agriculture), nongcun (villages or countryside), and nongmin (farmers or peasants).
    Keywords: banks, microcredit institutions, agricultural insurance, informal finance
    JEL: G21 G22 Q14
    Date: 2008
  5. By: Jason M. Fletcher; David Frisvold
    Abstract: While it is well-known that individuals with higher levels of education consume more preventive medical care, there are several potential explanations for this stylized fact. These explanations include causal and non-causal mechanisms, and distinguishing among explanations is relevant for accessing the importance of educational spillovers on lifetime health outcomes as well as uncovering the determinants of preventive care. In this paper, we use regression analysis, sibling fixed effects, and matching estimators to attempt to distinguish between causal and non-causal explanations of the impact of education on preventive care. In particular, we use a cohort of 10,000 Wisconsin high school graduates that has been followed for nearly 50 years and find evidence that attending college increases the likelihood of using several types of preventive care by approximately five to fifteen percent for college attendees in the early 1960s. This effect of greater education operates partly through occupational channels and access to care. These findings suggest that increases in education have the potential to spillover on long-term health choices.
    Date: 2008–11

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