nep-ias New Economics Papers
on Insurance Economics
Issue of 2009‒03‒22
nine papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Hurricane Insurance in Florida By Thomas von Ungern-Sternberg
  2. Fair Trade Contracts for Some, an Insurance for Others By Claire Chambolle; Sylvaine Poret
  3. An Empirical Approach to Understanding Privacy Concerns By Luc Wathieu; Allan Friedman
  4. Displacement of Older Workers: Re-employment, Hastened Retirement, Disability, or Other Destinations? By Finnie, Ross; Gray, David
  5. Measuring Disparities in Health Status and in Access and Use of Health Care in OECD Countries By Michael de Looper; Gaetan Lafortune
  6. Do German Welfare-to-Work Programmes Reduce Welfare and Increase Work? By Martin Huber; Michael Lechner; Conny Wunsch; Thomas Walter
  7. Adaption and anticipation effects to life events in the United Kingdom By Luis Angeles
  8. Ageing, Health and Life Satisfaction of the Oldest Old: An Analysis for Germany By Gwozdz, Wencke; Sousa-Poza, Alfonso
  9. AIG and the Fed: Prologue to future financial regulation? By Tatom, John

  1. By: Thomas von Ungern-Sternberg
    Abstract: This paper studies the evolution of hurricane insurance in Florida over the last decades. Hurricanes (and other natural catastrophes) are typically referred to as "uninsurable" risks. The more exposed property owners find it difficult to obtain insurance cover from the private market and/or can do so only at premiums that substantially exceeds their expected claims costs. The state of Florida has reacted to the incapacity of the private sector to insure hurricane risks at reasonable premium levels with the creation of Citizens (an insurer of last resort) and the Florida Hurricane Catastrophe Fund. Their existence has resulted in substantial premium reductions for the Florida property owners. Both institutions have the possibility of spreading the costs of a major hurricane over a (very) large number of policy holders through after the event compulsory assessments. The risk borne by each individual property owner is thus reasonably small. The benefits for consumers as a group have thus been substantial. Looking forward the challenge to the policy maker will be to fine-tune the operation (premium structure) of these two institutions so as to increase their political acceptance. To this end it will be necessary to limit the implicit subsidy of the "bad risks" through the "good risks".
    Keywords: hurricane; catastrophe insurance; regulation; market failure; Florida
    JEL: G22 L51 L59
    Date: 2009–02
  2. By: Claire Chambolle (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X, INRA - ALISS); Sylvaine Poret (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X, INRA - ALISS)
    Abstract: This article analyzes the impact of Fair Trade contracts between sub-groups of farmers and a Fair Trade organization on the spot market price. We analyze a three level vertical chain gathering perfectly competitive farmers upstream who offer their raw product on a spot market to manufacturers who then sell finished products to a downstream retailer. Absent Fair Trade, the entire raw product is sold on the spot market. When a Fair Trade organization offers a Fair Trade contract to a sub-group of farmers, it gathers a Guaranteed Minimum Price clause and a straight relationship between the sub-group of farmers and the retailer. This article highlights several conditions such that a snowball effect exists, i.e farmers outside of the Fair Trade contract also benefit from a higher spot market price.
    Keywords: Guaranteed Minimum Price Contracts, Disintermediation, Fair Trade, Vertical Chain, Two-part Tariff Contracts
    Date: 2009–03–11
  3. By: Luc Wathieu (ESMT European School of Management and Technology); Allan Friedman (John F. Kennedy School, Harvard University)
    Abstract: This paper shows that privacy concerns in commercial contexts are not solely driven by a desire to control the transmission of personal information or to avoid intrusive direct marketing campaigns. When they express privacy concerns, consumers anticipate indirect economic consequences of data use, such as price discrimination. Our general hypothesis is that consumers are capable of expressing differentiated levels of concerns in the presence of changes that suggest indirect consequences of information transmission. We suggest that there is a homo economicus behind privacy concerns, not simply a primal fear. This hypothesis is tested in a large-scale experiment evoking the context of affinitybased direct marketing of insurances, which relies on data transmitted by alumni associations. Because opt-in and opt-out choices offered by firms to consumers usually capture non-situational preferences about data transmission, their ability to enact privacy concerns is questioned by our findings.
    Keywords: privacy, opt-in/opt-out, insurance
    JEL: D8
    Date: 2009–01–14
  4. By: Finnie, Ross; Gray, David
    Abstract: The central objective of this study is to investigate the income sources and patterns of prime-age and older workers who suffer a layoff from steady employment. We focus on a set of cohorts who are deemed to have a high degree of attachment to the labour force preceding the event of an involuntary separation. Using a unique data base that merges administrative data marking the job separation, we track all of their sources of income over an interval that spans four years prior to the separation to five years after the separation. Our empirical analysis includes an investigation of the frequency that a laid-off individual will receive income ex post from a given source, a typology analysis of the various configurations of income received, and an econometric analysis of the incidence of certain post-layoff income configurations. We find that in any given year, approximately 2 % of our sample of workers with stable employment histories experience a ‘visible’ layoff. During the first three post-layoff years, 77 % of the group of laid-off workers (aged 45-64 years old) have non-trivial labour market earnings, and 56-65 % of them depend on the labour market for their primary source of income. This group of workers does experience substantial income losses. During the post-layoff period, approximately 14-19 % of them file a subsequent claim for EI benefits, but few of them depend on the EI regime as the primary source of their income. Very few of these individuals draw on other types of social insurance benefits, such as CPP disability, social assistance, and workers’ compensation. The most common destination state for prime-age and older workers who have not yet reached retirement age are early retirement and continued labour market activity, albeit at much lower earnings. It is rare for them to draw on social insurance benefits, and we find little evidence that disability benefits and workers compensation are functioning as disguised unemployment benefits.
    Keywords: Post-layoff transitions, incidence of program usage, retirement behaviour, disability benefits, re-employment transitions
    JEL: J63 J65 J68 J26
    Date: 2009–03–13
  5. By: Michael de Looper; Gaetan Lafortune
    Abstract: Most OECD countries have endorsed as major policy objectives the reduction of inequalities in health status and the principle of adequate or equal access to health care based on need. These policy objectives require an evidence-based approach to measure progress. This paper assesses the availability and comparability of selected indicators of inequality in health status and in health care access and use across OECD countries, focussing on disparities among socioeconomic groups. These indicators are illustrated using national or cross-national data sources to stratify populations by income, education or occupation level. In each case, people in lower socioeconomic groups tend to have a higher rate of disease, disability and death, use less preventive and specialist health services than expected on the basis of their need, and for certain goods and services may be required to pay a proportionately higher share of their income to do so.<BR>Les politiques de santé dans la plupart des pays de l’OCDE ont comme objectifs majeurs la réduction des inégalités en matière de santé et le respect du principe d’un accès adéquat ou égal aux soins basé sur les besoins. Des données robustes et fiables sont nécessaires pour mesurer l’atteinte de ces objectifs politiques. Ce document de travail évalue la disponibilité et la comparabilité de certains indicateurs de l’inégalité de l’état de santé et de l’accès et de l’utilisation des soins dans les pays de l’OCDE, en se concentrant sur les disparités selon les groupes socio-économiques. Ces indicateurs sont illustrés à partir de sources de données nationales ou internationales qui permettent de distinguer les populations par niveau de revenu, d’éducation et d’emploi. Dans tous les cas, les personnes appartenant à des groupes socio-économiques désavantagés ont tendance à avoir des taux de morbidité, d’incapacité et de mortalité plus élevés, à utiliser moins de services préventifs et de soins spécialisés que ce à quoi on pourrait s’attendre sur la base de leurs besoins, et à payer une plus large part de leur revenu pour se procurer certains biens et services de santé.
    JEL: I10 I18 J10
    Date: 2009–03–09
  6. By: Martin Huber; Michael Lechner; Conny Wunsch; Thomas Walter
    Abstract: Many Western economies have reformed their welfare systems with the aim of activating welfare recipients by increasing welfare-to-work programmes and job search enforcement. We evaluate the three most important German welfare-to-work programmes implemented after a major reform in January 2005 ("Hartz IV"). Our analysis is based on a unique combination of large scale survey and administrative data that is unusually rich with respect to individual, household, agency level, and regional information. We use this richness to allow for a selection-on-observables approach when doing the econometric evaluation. We find that short-term training programmes on average increase their participants' employment perspectives and that all programmes induce further programme participation. We also show that there is considerable effect heterogeneity across different subgroups of participants that could be exploited to improve the allocation of welfare recipients to the specific programmes and thus increase overall programme effectiveness
    Keywords: Welfare-to-work policies, propensity score matching, programme evaluation, panel data, targeting
    JEL: J68
    Date: 2009–03
  7. By: Luis Angeles
    Abstract: We analyze how individual happiness is affected by nine major life events using a panel of British individuals. Our aim is to test the importance of hedonic adaptation in the United Kingdom and to compare our results with equivalent ones obtained in the literature using German data. We also study anticipation effects for each life event. We find evidence that adaptation, although a common phenomenon, is not always complete and in some cases may not even be present. Compared to German individuals, the British appear to adapt much less to marriage and much more to unemployment.
    Date: 2009–02
  8. By: Gwozdz, Wencke (University of Hohenheim); Sousa-Poza, Alfonso (University of Hohenheim)
    Abstract: This analysis uses data from the German Socio-Economic Panel (GSOEP) and the Survey on Health, Ageing and Retirement in Europe (SHARE) to assess the effect of ageing and health on the life satisfaction of the oldest old (defined as 75 and older). We observe a U-shaped relationship between age and levels of life satisfaction for individuals aged between 16 and approximately 65. Thereafter, life satisfaction declines rapidly and the lowest absolute levels of life satisfaction are recorded for the oldest old. This decline is primarily attributable to low levels of perceived health. Once cohort effects are also controlled for, life satisfaction remains relatively constant across the lifespan.
    Keywords: oldest old, health, life satisfaction
    JEL: I18 I19 J28
    Date: 2009–03
  9. By: Tatom, John
    Abstract: Financial sector regulatory reform has been a leading national issue since the U.S. Treasury issued its Blueprint for reform in spring (2008). The mortgage foreclosure and financial crises reinforced popular interest in whether the U.S. regulatory framework was deficient and how to fix the regulatory framework. Meanwhile, some key decisions in the United States, particularly concerning the failure and bailout of AIG and some investment banks in fall 2008, have established precedents for a new regulatory framework and policies. Where policymakers go from here is not certain, but the ideas on the table and the direction of policy suggest that the role of the Federal Reserve (Fed) in financial regulation will become central, at least in critical periods. This paper reviews the calls for a new “financial stability” regulator and the potential role of the Fed as such a regulator. It argues that the takeover of AIG provides a useful example and precursor of the Fed’s suitability in that role. Section 1 explains the Fed’s role as regulator and the relationship of the Fed’s lender of last resort function to systemic risk. It also addresses recent changes in the notion of systemic risk and systemically significant firms in concluding that there is a remaining case for a new regulator of such risk. Section II reviews the financial problems of AIG and the changing intervention of the Fed and the U.S. Treasury in AIG. The last section takes up some related issues, the role of a central bank versus a Financial Stability Authority in regulating banks or systemic risk, the potential role of the Fed or a another federal regulator in regulating the insurance industry and the risk to Fed independence from extending its regulatory role to cover systemic risk. The Fed’s actions with regard to AIG provide strong evidence that broadening the too big to fail policy or broadening the Fed’s lender of last resort policy to include non-bank firms pose strong conflicts for the achievement of the objectives of monetary policy or of financial stability. Moreover, the loss experience of AIG indicates the problems of fragmented or absent federal regulation of insurers for regulatory reform.
    Keywords: Financial Regulation; Central Banking; Systemic Risk;
    JEL: E58 G28
    Date: 2009–02–28

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