nep-ias New Economics Papers
on Insurance Economics
Issue of 2010‒01‒10
twelve papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Crop Insurance: Security for Farmers and Agricultural Stakeholders in the Face of Seasonal Climate Variability By Reyes, Celia M; Domingo, Sonny N.
  2. An institutional evaluation of pension funds and life insurance companies By Dirk Broeders; An Chen; Birgit Koos
  3. Catastrophic Health Expenditure and Household Well-Being By Abul Naga, Ramses; Lamiraud, K
  4. On The Rise of Health Spending and Longevity By Fonseca, Raquel; Michaud, Pierre-Carl; Galama, Titus; Kapteyn, Arie
  5. Social Insurance in the Philippines: Responding to the Global Financial Crisis and Beyond By Manasan, Rosario G.
  6. Theoretical and Empirical Analysis of Mixed Medical Care Services in Japan ~ What is Equity? ~ By Hiromi Saito; Wataru Suzuki
  7. Fixing the leak: Unemployment incidence before and after the 2006 reform of unemployment benefits in Germany By Dlugosz, Stephan; Stephan, Gesine; Wilke, Ralf A.
  8. Policy Options for Rice and Corn Farmers in the Face of Seasonal Climate Variability By Reyes, Celia M; Domingo, Sonny N.; Gonzales, Kathrina G.; Mina, Christian D.
  9. On the Persistence of Income Shocks over the Life Cycle: Evidence and Implications By Fatih Karahan; Serdar Ozkan
  10. The Effects of Expanding the Generosity of the Statutory Sickness Insurance System By Nicolas R. Ziebarth; Martin Karlsson
  11. Soziale Sicherungssysteme in der Sozialen Marktwirtschaft: im Spannungsfeld zwischen Sozialpolitik und Markt? By Ines Läufer; Christine Wolfgramm
  12. Health and the savings of insured versus uninsured, working-age households in the U.S. By Maude Toussaint-Comeau; Jonathan Hartley

  1. By: Reyes, Celia M; Domingo, Sonny N.
    Abstract: Crop insurance is a risk management tool designed to even out agricultural risks and address the consequences of natural disasters to make losses more bearable, especially to the marginalized farmers. In the Philippines, the Philippine Crop Insurance Corporation (PCIC) implements and manages the government program on agricultural insurance. This paper provides a comprehensive review of the crop insurance program in the Philippines--its history, operationalization, performance, and a number of challenges. Some of the identified constraints in operating the program are high overhead cost, need for larger investment fund, and question of sustainability. The results of secondary data assessment and key informant interviews revealed that PCIC has captured only a small segment of its target clientele, particularly the subsistence farmers, due to logistical and marketing constraints. Moreover, farmer dependence on informal credit, particularly in rural farming communities, seems to have also created a nonviable setting for a crop insurance program.
    Keywords: seasonal climate forecast (SCF), agricultural credit, crop insurance, Philippine Crop Insurance Corporation (PCIC)
    Date: 2009
  2. By: Dirk Broeders; An Chen; Birgit Koos
    Abstract: This paper compares two different types of annuity providers, i.e. defined benefit pension funds and life insurance companies. One of the key differences is that the residual risk in pension funds is collectively borne by the beneficiaries and the sponsor while in the case of life insurers, it is borne by the external shareholders. This paper employs a contingent claim approach to evaluate the risk return trade-off for annuitants.For that, we take into account the differences in contract specifications and in regulatory regimes. Mean-variance analysis is conducted to determine annuity choices of consumers with different preferences. Using realistic parameters we find that under linear and quadratic utility, life insurance companies always dominate pension funds, while under other utility specifications this is only true for low default probabilities. Furthermore, we find that power utility consumers are indifferent if the long term default probability of pension funds exceeds that of life insurers by 2 to 4%. 
    Keywords: Pension plans; barrier options; contingent claim approach; mean-variance analysis.
    JEL: G11 G23
    Date: 2009–12
  3. By: Abul Naga, Ramses; Lamiraud, K
    Abstract: According to the catastrophic health expenditure methodology a house- hold is in catastrophe if its health out-of-pocket budget share exceeds a critical threshold. We develop a conceptual framework for addressing three questions in relation to this methodology, namely: 1. Can a budget share be informative about the sign of a change in welfare? 2. Is there a positive association between a households poverty shortfall and its health out-of- pocket budget share? 3. Does an increase in population coverage of a health insurance scheme always result in a reduction of the prevalence of catastrophic expenditures?
    Keywords: Catastrophic health expenditure; welfare change; poverty; performance of health insurance schemes
    Date: 2009
  4. By: Fonseca, Raquel (RAND); Michaud, Pierre-Carl (RAND); Galama, Titus (RAND); Kapteyn, Arie (RAND)
    Abstract: We use a calibrated stochastic life-cycle model of endogenous health spending, asset accumulation and retirement to investigate the causes behind the increase in health spending and life expectancy over the period 1965-2005. We estimate that technological change along with the increase in the generosity of health insurance may explain independently 53% of the rise in health spending (insurance 29% and technology 24%) while income less than 10%. By simultaneously occurring over this period, these changes may have lead to a "synergy" or interaction effect which helps explain an additional 37% increase in health spending. We estimate that technological change, taking the form of increased productivity at an annual rate of 1.8%, explains 59% of the rise in life expectancy at age 50 over this period while insurance and income explain less than 10%.
    Keywords: demand for health, health spending, insurance, technological change, longevity
    JEL: I10 I38 J26
    Date: 2009–12
  5. By: Manasan, Rosario G.
    Abstract: <p>This paper aims to review and assess protection afforded by the Social Security System and the Government Service Insurance System, two out of the three agencies tasked with administering social insurance in the country. Like social security systems in other countries, the GSIS and SSS provide income support to government/private sector employees and their families in times of contingencies like death, old age, sickness, and disability arising from work, and are financed out of the contribution of members and their employers. The GSIS and SSS are both mandatory, publicly managed, benefit-defined social insurance schemes with funding coming from members and their employers and investment income from reserves. Government guarantees the solvency of both systems and the levels of benefits prescribed.</p> <p>The global economic downturn will tend to reduce the stream of contributions to the social security system as a result of the increase in unemployment and the reduction in the level of earnings on which contributions are based. At the same time, there will be a temptation on the part of policymakers to use the pension funds to partially finance the fiscal stimulus package that has been drawn in response to the crisis. However, using the pension funds for the purpose of pump priming the domestic economy will likely not match the primary objective of the fund to protect old-age income of members.</p> <p>Even without the global financial crisis, reforms aimed at improving the financial viability of and corporate governance in both the GSIS and the SSS have already been started. Some gains have already been achieved in various areas of concern but sustained effort is still needed. The needed reforms have already been articulated by various experts (e.g., Holzmann et al. 2000, Navarro 2004, OECD 2009, Asher 2008) and includes: (i) the broadening of coverage and enhancement of compliance; (ii) greater emphasis on fiduciary responsibility of social security institutions and improve the management of their investment portfolio; and (iii) reduction in administrative cost; and (iv) institution of additional parametric measures to improve sustainability of the social security institutions and reduce the national government’s contingent liability. Prospectively, there is a need to explore the feasibility of a noncontributory social pension for aged poor given the low coverage of the informal sector in the SSS.</p>
    Keywords: defined-benefit social insurance scheme, replacement rate and required contribution rate of social security system
    Date: 2009
  6. By: Hiromi Saito (National Graduate Institute for Policy Studies); Wataru Suzuki (Gakushuin University)
    Abstract: The aim of this study is to examine the manner in which a Japanese medical regulation affects equity in health care within an economic framework. The regulation is termed “the ban on mixed treatment.” Mixed treatment is the mixed use of treatments covered by public health insurance as well as those not covered by such insurance in the course of treating an illness. In principle, the Japanese Health Ministry bans mixed treatment. In order to examine the effect of mixed treatment on equity in health care, we explain the background of Japanese mixed treatment. Thereafter, we introduce a simple economic model and provide suggestions regarding the behavior of patients under the ban rule. Based on the theoretical model, we simulate the behavior of patients using questionnaire data and analyze the results from various perspectives. Here, we create data using the Contingent Valuation Method (CVM). The results suggest that lifting the ban could reduce differences in treatments among income/asset class but would make payment for health care regressive slightly. The results also suggest that the behavior of patients is different even within the same income/asset class, and there are other factors for receiving uninsured treatment besides capacity to pay.
    Keywords: Mixed treatments, Equity in access to health care, Freedom of choice in health care, Contingent Valuation Method.
    Date: 2009–03
  7. By: Dlugosz, Stephan; Stephan, Gesine (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Wilke, Ralf A.
    Abstract: "From 2002 - 2004, the German government passed several laws that curtailed the generosity of the unemployment compensation system. One of the most ambitious changes was a considerable reduction in unemployment benefit entitlement lengths for older unemployed, which was effective during 2006 and 2007. We apply a difference-in-differences approach to show that the highly disputed reform induced a considerable decline in unemployment incidence among older workers. It thus sealed an important leak in the unemployment insurance system. Furthermore, we find a strong anticipation effect; unemployment entries of elderly workers peaked during the months preceding the reform." (author's abstract, IAB-Doku) ((en))
    Keywords: ältere Arbeitnehmer, arbeitsmarktpolitische Maßnahme, Arbeitslosengeld, Leistungsbezug - Dauer, Wirkungsforschung
    JEL: J63 J65
    Date: 2009–12–10
  8. By: Reyes, Celia M; Domingo, Sonny N.; Gonzales, Kathrina G.; Mina, Christian D.
    Abstract: <p>In the face of seasonal climate variability, the smallholder farmers, particularly those in rural communities, are among the most adversely affected. As a way to address this, together with concern on low productivity, the Philippine government has been implementing a range of risk management programs for farmers and other agricultural stakeholders. Based on key informant surveys and focus group discussions with rice and corn farmers conducted in key producing areas, however, farmers reported that they still have limited options in terms of changing their production decisions in response to seasonal climate forecasts (SCFs). Among the risk mitigation tools available, the following emerged as most preferred by farmers: localized climate information, accessible credit, crop insurance, and special assistance programs such as irrigation and seeds provision.</p> <p>This paper tackles these programs in detail and then discusses the challenges besetting these programs. The paper also presents some policy options which could enhance the delivery of these agricultural services in pursuit of improved productivity and welfare in target farming communities in the country.</p>
    Keywords: irrigation, seasonal climate forecast (SCF), risk management programs, localized climate information, agricultural credit, crop insurance, seeds subsidy
    Date: 2009
  9. By: Fatih Karahan (Department of Economics, University of Pennsylvania); Serdar Ozkan (Department of Economics, University of Pennsylvania)
    Abstract: This paper proposes a novel specification for residual earnings that allows for a lifetime profile in the persistence and variance of labor income shocks. We show theoretically that the statistical model is identified and estimate it using data from the PSID. We strongly reject the hypothesis of a at life-cycle profile for persistence and variance of persistent shocks, but not for the variance of transitory shocks. Shocks to earnings are only moderately persistent (around 0.75) for young individuals. Persistence rises with age up to unity until midway in life and decreases to around 0.95 toward the end of the life cycle. On the other hand, the variance of persistent shocks exhibits a U-shaped profile over the life cycle (with a minimum of 0.01 and a maximum of 0.045). Our estimate of persistence, for most of the working life, is substantially lower than typical estimates in the literature. We investigate the implications of these profiles for consumption-savings behavior with a standard life-cycle model. Under natural borrowing limits, the welfare cost of idiosyncratic risk implied by the age dependent income process is 32% lower compared to an AR(1) process without age profiles. This is mostly due to a higher degree of consumption insurance for young workers, for whom persistence is moderate. The results hold qualitatively for an economy with no borrowing, although the difference between specifications is smaller (23%). We conclude that the welfare cost of idiosyncratic risk is overstated.
    Keywords: Idiosyncratic income risk, Incomplete markets models, Earnings persistence, Consumption insurance
    JEL: C33 D31 D91 E21 J31
    Date: 2009–12–09
  10. By: Nicolas R. Ziebarth; Martin Karlsson
    Abstract: In 1999, in Germany, the statutory sick pay level was increased from 80 to 100 percent of foregone earnings for sickness episodes of up to six weeks. We show that this reform has led to an increase in average absence days of about 10 percent or one additional day per employee, per year. The estimates are based on SOEP survey data and parametric, nonparametric, and combined matching-regression difference-in-differences methods. Extended calculations suggest that the reform might have increased labor costs by about €1.8 billion per year and might have led to the loss of around 50,000 jobs.
    Keywords: Sickness absence, statutory sick pay, natural experiment, Socio-Economic Panel Study (SOEP)
    JEL: H51 I18 J22
    Date: 2009
  11. By: Ines Läufer; Christine Wolfgramm
    Abstract: Im vorliegenden Artikel werden wichtige Grundprinzipien der Sozialen Marktwirtschaft dargestellt, um anschließend ihre Rolle als Gestaltungsrichtlinie für die Ausgestaltung sozialer Sicherungssysteme aufzuzeigen. Gerade in der Gesetzlichen Krankenversicherung in Deutschland herrscht wenig Vertrauen in die Marktmechanismen, da das „besondere Gut“ Gesundheit nach Ansicht vieler nicht den anonymen Marktkräften überlassen werden soll. In diesem Artikel wird aufgezeigt, dass die mangelnde Berücksichtigung der grundlegenden Prinzipien der Sozialen Marktwirtschaft zu den heutigen Problemen in den sozialen Sicherungssystemen führt. Da die soziale Sicherung als ein Grundpfeiler der Sozialen Marktwirtschaft angesehen wird, führt ihre unsystematische Ausgestaltung zu einem Vertrauensverlust in die Soziale Marktwirtschaft selbst. Vertrauen in diese Wirtschaftsordnung kann nur wiedergewonnen werden, wenn man bei ihrer Umsetzung wieder mehr auf deren Grundsätze achtet. Dann kann die Soziale Marktwirtschaft auch wieder als Vorbild und Impulsgeber in der Wirtschaftsordnungsdebatte dienen.
    Keywords: Social Market Economy, Health insurance
    JEL: I P
    Date: 2009–04
  12. By: Maude Toussaint-Comeau; Jonathan Hartley
    Abstract: This paper examines the effect of a decline in health on the savings and portfolio choice of young, working individuals and the differences between insured and uninsured cohorts using the 2001 Survey of Income and Program Participation. We find that insured individuals are significantly likely to divest from risky asset holdings in response to a decline in health, controlling for variables such as income, age, and out-of-pocket medical expenses. Unlike many previous papers, which dismiss health and portfolio choice associations among retired individuals on the basis of unobserved heterogeneity, we find that our results for working individuals are robust when using fixed effects models in a three-year longitudinal panel. Consistent with an overall theory of risk, we find that the relationship between an onset of poor health and an increased aversion to risky assets among the insured is strongest (only apparent) among married-couple households.
    Date: 2009

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