nep-ias New Economics Papers
on Insurance Economics
Issue of 2009‒03‒14
six papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. The Effect Of Supplemental Insurance On Health Care Demand With Multiple Information: A Latent Class Analysis By Dardanoni, V; Li Donni, P
  2. Professional Liability Insurance Contracts: Claims Made Versus Occurrence Policies By Martin Boyer; Karine Gobert
  3. Improving Flood Insurance and Flood Risk Management: Insights from St. Louis, Missouri By Kousky, Carolyn; Kunreuther, Howard C.
  4. Individual prediction of automobile bodily injury claims liabilities By Mercedes Ayuso(universitat de Barcelona); Miguel Santolino(Universitat de Barcelona)
  5. Immigration and Social Benefits in a Mediterranean Welfare State: The Case of Spain By Muñoz de Bustillo, Rafael; Antón, José-Ignacio
  6. Forecasting the fragility of the banking and insurance sector By Kerstin Bernoth; Andreas Pick

  1. By: Dardanoni, V; Li Donni, P
    Abstract: The Medicare program, which provides insurance coverage to the elderly in the United States, does not protect them fully against high out-of-pocket costs. For this reason private supplementary insurance, named Medigap, has been available to cover Medicare gaps. This paper studies how Medigap affects the utilization of health care services. The decision to take out supplemental insurance is likely to be infuenced by unobservable attributes such as actual risk type and insurance preferences. Empirical appraisals to this problem typically rely on the recursive bivariate probit. We exploit the Health and Retirement Study data and some recent advances on latent class analysis to jointly model the insurance and health care decisions. Results show the presence of unobserved `types' representing different preferences and risk levels. We compare our results to those obtained by the probit and the bivariate probit and find the residual effect of insurance on health care not significant.
    Keywords: Health Care Demand; Latent Class Models; Health Insurance; Asymmetric Information; Medigap.
    JEL: C52 D82 G22 I10
    Date: 2009–03
  2. By: Martin Boyer (CEFA, HEC-Montreal); Karine Gobert (GREDI, Faculte d'administration, Université de Sherbrooke)
    Abstract: One of the major contract innovation in liability insurance during the liability crisis of the early 1980s was the introduction of claims-made and reported insurance contracts. Typical insurance contracts are based on loss occurrence (i.e., occurrence-based contracts), which means that a loss incurred in a given year is covered by the insurance contract for that year, no matter when the claims is actually reported. In a claims-made contract, losses are covered in the year in which they are reported. The major difference between the two types of contract is thus that occurrence contracts are forward looking whereas claimsmade contracts are retrospective. The goal of this paper is to analyze the efficiency of both forms of insurance contract and the reasons why policyholders would prefer one contract over the other.
    Keywords: Liability insurance, Claims-made and reported, Loss development, Income smoothing.
    JEL: G22 D86
    Date: 2009
  3. By: Kousky, Carolyn (Resources for the Future); Kunreuther, Howard C.
    Abstract: This paper examines the history of St. Louis, Missouri in coping with flood risk over the past 15 years, with a focus on flood insurance. Six challenges to the continued management of riverine flood risk are identified and discussed. They are (1) many property owners don’t buy flood insurance, (2) people underestimate flood risk, (3) we need better flood maps, (4) we have a “love affair” with levees, (5) flood risk is increasing over time, and (6) we take deep pride in rebuilding after a disaster. Recommendations for how to improve flood risk management in light of these challenges are offered. Focused attention is given to the possibility of long-term flood insurance contracts tied to long-term loans for risk-mitigating activities in overcoming the six challenges.
    Keywords: disaster insurance, National Flood Insurance Program, risk, floods
    JEL: Q54 G22
    Date: 2009–03–03
  4. By: Mercedes Ayuso(universitat de Barcelona); Miguel Santolino(Universitat de Barcelona) (Universitat de Barcelona)
    Abstract: Most motor bodily injury (BI) claims are settled by negotiation, with fewer than 5% of cases going to court. A well-defined negotiation strategy is thus very useful for insurance companies. In this paper we assume that the monetary compensation awarded in court is the upper amount to be offered by the insurer in the negotiation process. Using a real database, a log-linear model is implemented to estimate the maximal offer. Non-spherical disturbances are detected. Correlation occurs when various claims are settled in the same judicial verdict. Groupwise heteroscedasticity is due to the influence of the forensic valuation on the final compensation amount.
    Keywords: multivariate statistics, negotiation process, generalized confidence intervals
    JEL: C31 C53 G22
    Date: 2009
  5. By: Muñoz de Bustillo, Rafael; Antón, José-Ignacio
    Abstract: The aim of this paper is to explore the impact of immigration on the Spanish Welfare State nowadays. Using two different household surveys, both the reception of state cash transfers and the use of public health care insurance by nationals and immigrants are analysed. Controlling by observable socio-demographic characteristics, we find that immigrants receive fewer cash transfers than locals and do not exhibit a statistically significant higher use of health care services than nationals. The nature of the Spanish Welfare State compared to its European correlates and the age composition of the immigrant population, concentrated in active age, can help to explain these findings.
    Keywords: Immigration; Welfare State; Spain; cash transfers; health care
    JEL: F22 H53
    Date: 2009–03
  6. By: Kerstin Bernoth; Andreas Pick
    Abstract: This paper considers the issue of forecasting financial fragility of banks and insurances using a panel data set of performance indicators, namely distance-to-default, taking unobserved common factors into account. We show that common factors are important in the performance of banks and insurances, analyze the influences of a number of observable factors on banking and insurance performance, and evaluate the forecasts from our model. We find that taking unobserved common factors into account reduces the root mean square forecasts error of  firm specific forecasts by up to 11% and of system forecasts by up to 29% relative to a model based only on observed variables. Estimates of the factor loadings suggest that the correlation of financial institutions has been relatively stable over the forecast period.
    Keywords: Financial stability; financial linkages; banking; insurances; unobserved common factors; forecasting
    JEL: C53 G21 G22
    Date: 2009–02

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