nep-ias New Economics Papers
on Insurance Economics
Issue of 2009‒09‒26
ten papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Long-term Care Insurance Facilities and Interregional Migration of the Elderly in Japan By Akihiro Kawase; Katsuyoshi Nakazawa
  2. Health Insurance Tax Credits and Health Insurance Coverage of Low-Earning Single Mothers By Merve Cebi; Stephen A. Woodbury
  3. Participating insurance contracts and the Rothschild-Stiglitz equilibrium puzzle By Pierre Picard
  4. Raising capital in an insurance oligopoly market By Julien Hardelin; Sabine Lemoyne De Forges
  5. Forest and Sea as Insurance among Fijians By Yoshito Takasaki
  6. The Effect of Deposit Insurance on Market Discipline:Evidence from a Natural Experiment on Deposit Flows By Alexei Karas; William Pyle; Koen Schoors
  7. The Impact of Tort Reform on Employer-Sponsored Health Insurance Premiums By Ronen Avraham; Leemore S. Dafny; Max M. Schanzenbach
  8. Approaches to Estimating the Health State Dependence of the Utility Function By Finkelstein, Amy N.; Luttmer, Erzo F. P.; Notowidigdo, Matthew J.
  9. Understanding, Modeling and Managing Longevity Risk: Key Issues and Main Challenges By Pauline Barrieu; Harry Bensusan; Nicole El Karoui; Caroline Hillairet; Stéphane Loisel; Claudia Ravanelli; Yahia Salhi
  10. Optimal reinsurance/investment problems for general insurance models By Yuping Liu; Jin Ma

  1. By: Akihiro Kawase (Faculty of Economics, Toyo University, 5-28-20 Hakusan, Bunkyo-ku, Tokyo 112-8606, Japan); Katsuyoshi Nakazawa (Faculty of Economics, Toyo University)
    Abstract: Using municipality-level data of Japan, this paper empirically examines how the capacity of long-term care insurance facilities impacts interregional migration of the elderly. We construct net-migration data of the elderly population in each municipality by combining statistics available from existing sources. We find that interregional differences in capacity of long-term care insurance facilities generate strong magnetic effects on migration of the elderly. Our results indicate that family care is difficult and that long-term care insurance facilities are necessary for late-stage elderly in need of long-term care.
    Keywords: Long-term care insurance facility, Interregional migration, Welfare magnet
    JEL: H75
    Date: 2009
  2. By: Merve Cebi (University of Massachusetts Dartmouth); Stephen A. Woodbury (W.E. Upjohn Institute and Michigan State University)
    Abstract: The Omnibus Budget Reconciliation Act of 1990 introduced a refundable tax credit for low-income working families who purchased health insurance coverage for their children. This health insurance tax credit (HITC) existed during tax years 1991, 1992, and 1993, and was then rescinded. We use Current Population Survey data and a difference-in-differences approach to estimate the HITC’s effect on private health insurance coverage of low-earning single mothers. The findings suggest that during 1991–1993, the health insurance coverage of single mothers was about 6 percentage points higher than it would have been in the absence of the HITC.
    Keywords: Retirement; Health insurance; Low-wage workers; Tax credits and subsidies
    JEL: H2 H51 I18 J32
    Date: 2009–06
  3. By: Pierre Picard (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X)
    Abstract: We show that an equilibrium always exists in the Rothschild-Stiglitz insurance market model with adverse selection when insurers can offer either non- participating or participating policies, i.e. insurance contracts which may involve policy dividends or supplementary calls for premium. The equilibrium coincides with the Miyazaki- Spence-Wilson equilibrium, which may involves cross-subsidization between contracts within subgroups of individuals. The paper establishes that participating policies act as an implicit threat that dissuades deviant insurers who aim at attracting low risk individuals only. The model predicts that the mutual corporate form should be prevalent in insurance markets or submarkets where second-best Pareto efficiency requires cross-subsidization between risk types. Stock insurers and mutuals may coexist, with stock insurers offering insurance coverage at actuarial price and mutuals cross-subsidizing risks.
    Date: 2009–09–07
  4. By: Julien Hardelin (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X, AgroParisTech ENGREF - (-)); Sabine Lemoyne De Forges (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X, AgroParisTech ENGREF - (-))
    Abstract: We consider an oligopoly of firms that compete on price. Firms produce a non-stochastic output, insurance coverage, which is sold before the true cost is known. They behave as if they were risk-averse for a standard reason of costly external finance. The model consists in a two-stage game. At stage 1, each firm chooses its internal capital level. At stage 2, firms compete on price. We characterize the conditions for Nash equilibria and analyze the strategic impact of capital choice on the market. We discuss the model with regard to insurance industry specificity and regulation.
    Keywords: Price Competition; Risk-averse Firms; Insurance Market; Capital Choice.
    Date: 2009–09–16
  5. By: Yoshito Takasaki
    Abstract: This paper examines how forest and marine resources serve as insurance against a tropical cyclone using original household data gathered in rural Fiji. The fixed-effects estimator for a censored dependent variable controls for unobservable household heterogeneity that can cause bias. I propose a simple empirical strategy, which can be widely applied, to test whether a household intensifies labor activity to earn extra income to be shared under private risk-sharing arrangements. I find that while households abandon forest product gathering right after the cyclone, value-added handicrafts made of some forest products by women serve as self-insurance against crop damage after the emergency period and this is especially so among female-headed households. Fijians intensify fishing to augment mutual insurance for the recovery from village facility damage and housing damages experienced by others. I discuss how this distinct pattern emerges as private adjustments to cyclone relief delivered to the region.
    Date: 2009
  6. By: Alexei Karas; William Pyle; Koen Schoors
    Abstract: We explore how the introduction of explicit deposit insurance affects deposit flows into and out of banks of varying risk levels. Using evidence from a natural experiment in Russia, we employ a difference-in-difference estimator to isolate the change in the deposit flows of the newly insured group (i.e., households) relative to the uninsured “control” group (i.e., firms), thus improving upon prior studies that have sought to identify the effect of deposit insurance on market discipline. We find that the relative sensitivity of household deposits to bank capitalization diminished markedly after the introduction of an insurance program covering their deposits but not those of firms. The finding, we demonstrate, is not an artifact of the two groups responding differently to a banking crisis that occurred in Russia at roughly the same time.
    Date: 2009–05
  7. By: Ronen Avraham; Leemore S. Dafny; Max M. Schanzenbach
    Abstract: We evaluate the effect of tort reform on employer-sponsored health insurance premiums by exploiting state-level variation in the timing of reforms. Using a dataset of healthplans representing over 10 million Americans annually between 1998 and 2006, we find that caps on non-economic damages, collateral source reform, and joint and several liability reform reduce premiums by 1 to 2 percent each. These reductions are concentrated in PPOs rather than HMOs, suggesting that can HMOs can reduce “defensive†healthcare costs even absent tort reform. The results are the first direct evidence that tort reform reduces healthcare costs in aggregate; prior research has focused on particular medical conditions.
    JEL: H51 I18 K13
    Date: 2009–09
  8. By: Finkelstein, Amy N. (MIT); Luttmer, Erzo F. P. (Harvard University and IZA, Bonn); Notowidigdo, Matthew J. (MIT)
    Abstract: If the marginal utility of consumption depends on health status, this will affect the economic analysis of a number of central problems in public finance, including the optimal structure of health insurance and optimal life cycle savings. In this paper, we describe the promises and challenges of various approaches to estimating the effect of health on the marginal utility of consumption. Our basic conclusion is that while none of these approaches is a panacea, many offer the potential to shed important insights on the nature of health state dependence.
    JEL: D12 I10
    Date: 2009–01
  9. By: Pauline Barrieu (Department of Statistics - London School of Economics); Harry Bensusan (CMAP - Centre de Mathématiques Appliquées - CNRS : UMR7641 - Polytechnique - X); Nicole El Karoui (CMAP - Centre de Mathématiques Appliquées - CNRS : UMR7641 - Polytechnique - X); Caroline Hillairet (CMAP - Centre de Mathématiques Appliquées - CNRS : UMR7641 - Polytechnique - X); Stéphane Loisel (SAF - Laboratoire de Sciences Actuarielle et Financière - Université Claude Bernard - Lyon I : EA2429); Claudia Ravanelli (Swiss Financial Institute - École Polytechnique Fédérale de Lausanne); Yahia Salhi (SAF - Laboratoire de Sciences Actuarielle et Financière - Université Claude Bernard - Lyon I : EA2429, CERDALM - SCOR Global Life)
    Abstract: In this article we investigate the latest developments on longevity risk modeling. We first introduce longevity risk and some key actuarial definitions as to allow for a better understanding of the related challenges in term of risk management from both a financial and insurance point of view. The article also provides a global view on the practical issues on longevity-linked insurance and pension funds products that arise mainly from the steady increase in life expectancy since 1960s. Those issues are leading the industry to adopt more effective regulations to better assess and efficiently manage the inherited risks. Simultaneously, the development on the longevity has enhanced the need of capital markets as to manage and transfer the risk throughout the so-called insurance-linked securities (ILS). Therefore, we also highlight future developments on longevity risk management from a financial point of view, bringing up practices from the banking industry in terms of modeling and pricing.
    Keywords: Longevity Risk; securitization; risk transfer; incomplete market; life insurance; stochastic mortality; pensions; long term interest rate; regulation; population dynamics.
    Date: 2009–09
  10. By: Yuping Liu; Jin Ma
    Abstract: In this paper the utility optimization problem for a general insurance model is studied. The reserve process of the insurance company is described by a stochastic differential equation driven by a Brownian motion and a Poisson random measure, representing the randomness from the financial market and the insurance claims, respectively. The random safety loading and stochastic interest rates are allowed in the model so that the reserve process is non-Markovian in general. The insurance company can manage the reserves through both portfolios of the investment and a reinsurance policy to optimize a certain utility function, defined in a generic way. The main feature of the problem lies in the intrinsic constraint on the part of reinsurance policy, which is only proportional to the claim-size instead of the current level of reserve, and hence it is quite different from the optimal investment/consumption problem with constraints in finance. Necessary and sufficient conditions for both well posedness and solvability will be given by modifying the ``duality method'' in finance and with the help of the solvability of a special type of backward stochastic differential equations.
    Date: 2009–08

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