nep-ias New Economics Papers
on Insurance Economics
Issue of 2010‒10‒09
thirteen papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Building Loss Models By Burnecki, Krzysztof; Janczura, Joanna; Weron, Rafal
  2. Public and Private Insurance with Costly Transactions By Bertola, Giuseppe; Koeniger, Winfried
  3. Business Cycle Dependent Unemployment Insurance By Andersen, Torben; Svarer, Michael
  4. A Hierarchical Agency Model of Deposit Insurance By Jonathan Carroll; Shino Takayama
  5. Is Employer-Based Health Insurance a Barrier to Entrepreneurship? By Fairlie, Robert W.; Kapur, Kanika; Gates, Susan
  6. Catalyzers for Social Insurance: Education Subsidies vs. Real Capital Taxation By Dirk Schindler; Hongyan Yang
  7. The male-female gap in physician earnings: Evidence from a public health insurance system. By Theurl, Engelbert; Winner, Hannes
  8. Incentive and Insurance Effects of Tax Financed Unemployment Insurance By Andersen, Torben M
  9. Estrutura de mercado do setor de saúde suplementar no Brasil By Mônica Viegas Andrade; Marina Moreira da Gama; Ricardo Machado Ruiz; Ana Carolina Maia; Bernardo Modenesi; Daniel Matos Tiburcio
  10. Indicadores de gastos com serviços médicos no setor de saúde suplementar no Brasil : o caso Sabesprev By Mônica Viegas Andrade; Ana Carolina Maiab; Cristina Guimarães Rodrigues
  11. Intergenerational Conflict and International Risk Sharing By Martín Gonzalez Eiras
  12. Seguros, crisis, regulación y disciplina del mercado By Ferro, Gustavo; Castagnolo, Fermando
  13. A Competing Risk Model for Health and Food Insecurity in the West Bank By Cavatorta, Elisa; Pieroni, Luca

  1. By: Burnecki, Krzysztof; Janczura, Joanna; Weron, Rafal
    Abstract: This paper is intended as a guide to building insurance risk (loss) models. A typical model for insurance risk, the so-called collective risk model, treats the aggregate loss as having a compound distribution with two main components: one characterizing the arrival of claims and another describing the severity (or size) of loss resulting from the occurrence of a claim. In this paper we first present efficient simulation algorithms for several classes of claim arrival processes. Then we review a collection of loss distributions and present methods that can be used to assess the goodness-of-fit of the claim size distribution. The collective risk model is often used in health insurance and in general insurance, whenever the main risk components are the number of insurance claims and the amount of the claims. It can also be used for modeling other non-insurance product risks, such as credit and operational risk.
    Keywords: Insurance risk model; Loss distribution; Claim arrival process; Poisson process; Renewal process; Random variable generation; Goodness-of-fit testing
    JEL: G22 C63 C46 C15 G32
    Date: 2010–09
  2. By: Bertola, Giuseppe (University of Turin); Koeniger, Winfried (Queen Mary, University of London)
    Abstract: We characterize how public insurance schemes are constrained by hidden financial transactions. When non-exclusive private insurance entails increasing unit transaction costs, public transfers are only partly offset by hidden private transactions, and can influence consumption allocation. We show that efficient transfer schemes should take into account the impact of insurance on unobservable effort and saving choices as well as the relative cost of public and private insurance technologies. We provide suggestive evidence for the empirical relevance of these results by inspecting the cross-country relationship between available indicators of insurance transaction costs and variation in public and private insurance.
    Keywords: public transfers, private insurance, moral hazard, transaction costs
    JEL: E21 D82 H21 G22
    Date: 2010–09
  3. By: Andersen, Torben (University of Aarhus); Svarer, Michael (University of Aarhus)
    Abstract: The consequences of business cycle contingencies in unemployment insurance systems are considered in a search-matching model allowing for shifts between “good” and “bad” states of nature. We show that not only is there an insurance argument for such contingencies, but there may also be an incentive argument. Since benefits may be less distortionary in a recession than a boom, it follows that counter-cyclical benefits reduce average distortions compared to state independent benefits. We show that optimal (utilitarian) benefits are counter-cyclical and may reduce the structural (average) unemployment rate, although the variability of unemployment may increase.
    Keywords: unemployment benefits, business cycle, insurance, incentives
    JEL: J6 H3
    Date: 2010–09
  4. By: Jonathan Carroll; Shino Takayama (School of Economics, The University of Queensland)
    Abstract: This paper develops a hierarchical agency model of deposit insurance. The main purpose is to undertake a game theoretic analysis of the consequences of deposit insurance schemes and their effects on monitoring incentives for banks. Using this simple framework, we analyze both risk- independent and risk-dependent premium schemes along with reserve requirement constraints. The results provide policymakers with not only a better understanding of the effects of deposit insurance on welfare and the problem of moral hazard, but also the policy implications implied in the design of de- posit insurance schemes. Our finding is consistent with the empirical research on depositor discipline.
    Date: 2010
  5. By: Fairlie, Robert W. (University of California, Santa Cruz); Kapur, Kanika (University College Dublin); Gates, Susan (RAND)
    Abstract: The focus on employer-provided health insurance in the United States may restrict business creation. We address the limited research on the topic of "entrepreneurship lock" by using recent panel data from matched Current Population Surveys. We use difference-indifference models to estimate the interaction between having a spouse with employer-based health insurance and potential demand for health care. We find evidence of a larger negative effect of health insurance demand on business creation for those without spousal coverage than for those with spousal coverage. We also take a new approach in the literature to examine the question of whether employer-based health insurance discourages business creation by exploiting the discontinuity created at age 65 through the qualification for Medicare. Using a novel procedure of identifying age in months from matched monthly CPS data, we compare the probability of business ownership among male workers in the months just before turning age 65 and in the months just after turning age 65. We find that business ownership rates increase from just under age 65 to just over age 65, whereas we find no change in business ownership rates from just before to just after for other ages 55-75. We also do not find evidence from the previous literature and additional estimates that other confounding factors such as retirement, partial retirement, social security and pension eligibility are responsible for the increase in business ownership in the month individuals turn 65. Our estimates provide some evidence that "entrepreneurship lock" exists, which raises concerns that the bundling of health insurance and employment may create an inefficient level of business creation.
    Keywords: entrepreneurship, health insurance, medicare, job lock
    JEL: L26 I1
    Date: 2010–09
  6. By: Dirk Schindler (Department of Economics, University of Konstanz, Germany); Hongyan Yang (Department of Economics, University of Konstanz, Germany)
    Abstract: To analyze the optimal social insurance package, we set up a two-period life-cycle model with risky human capital investment, where the government has access to labor taxation, education subsidies and capital taxation. Social insurance is provided by redistributive labor taxation. Moreover, both education subsidies and capital taxation are used as catalyzers to facilitate social insurance by mitigating distortions from labor taxation. We derive a Ramsey-rule for the optimal combination of these two instruments. Relative to capital taxation, optimal education subsidies increase in their relative effectiveness to boost labor supply and in households' underinvestment into education, but they decrease in their relative net distortions. For their absolute levels, indirect complementarity effects, i.e., influencing the effectiveness of the other instrument, do matter. Generally, a decrease in capital taxes should go along with an increase in education subsidies.
    Keywords: Human Capital Investment, Education Subsidies, Capital Taxation, Risk, Social Insurance
    JEL: H21 I2 J2 D80
    Date: 2010–09–30
  7. By: Theurl, Engelbert (Department of Economics and Statistics, University of Innsbruck); Winner, Hannes (University of Salzburg)
    Abstract: Empirical evidence from U.S. studies suggests that female physicians earn less than their male counterparts, on average. The earnings gap does not disappear when individual and market characteristics are controlled for. This paper investigates whether a gender earnings difference can also be observed in a health care system predominantly financed by public insurance companies. Using a unique data set of physicians’ earnings recorded by a public social security agency in an Austrian province between 2000 and 2004, we find a gender gap in average earnings of about 32 percent. A substantial share of this gap (20 to 47 percent) cannot be explained by individual and market characteristics, leaving labor market discrimination as one possible explanation for the observed gender earnings difference of physicians.
    Keywords: Health care financing; physician earnings; wage composition
    JEL: I11 I18 J31 J71
    Date: 2010–09–30
  8. By: Andersen, Torben M
    Abstract: The potential distortions of job-search incentives caused by unemployment benefits and their financing are well known. However, a benefit-tax scheme also provides insurance having direct utility effects as well as indirect effects on risk taking. The latter mitigates or may even dominate standard incentive effects to produce a non-monotone relation between efficiency (incentives) and equity (insurance). This implies that an increase in both benefits and the tax rate up to some point may increase average income and reduce inequality, i.e., there is not necessarily a trade-off between considerations for efficiency and equity. However, optimal utilitarian policies always position the economy at a point where marginal policy changes involve a trade-off, otherwise policies would not be optimal.
    Keywords: incentives; risk sharing; Search; unemployment benefits
    JEL: D80 J20 J65
    Date: 2010–09
  9. By: Mônica Viegas Andrade (Cedeplar-UFMG); Marina Moreira da Gama (Cedeplar-UFMG); Ricardo Machado Ruiz (Cedeplar-UFMG); Ana Carolina Maia (Cedeplar-UFMG); Bernardo Modenesi (Cedeplar-UFMG); Daniel Matos Tiburcio (Cedeplar-UFMG)
    Abstract: In this paper we investigate the concentration in health insurance sector in Brazil. In order to conduct this analysis it is necessary to establish the definition of relevant market in product and geographical dimensions. In this paper we apply a methodology based on gravitation models to define the geographical market. Till now the concentration analysis was performed in Brazil using geopolitical boundaries as the market definition. Geopolitical boundaries may not be an adequate criteria, once Brazil is specially large and heterogeneous country. We assume that health services are locally demanded and supplies. In that manner the market area is defined by the flow of trade. This flow is conditioned on health services supply, potential demand and friction variables. The empirical analysis was conducted using database sourced by the National Health Insurance Agency in Brazil to 2007 and 2010. We analyzed the competition structure performing concentration indexes. Our results point out that health insurance sector in Brazil is very concentrated. The most important firm is UNIMED that dominates the majority of markets.
    Keywords: health insurance sector, competition, relevant market
    JEL: L10 L11 L40 I11
    Date: 2010–09
  10. By: Mônica Viegas Andrade (Cedeplar-UFMG); Ana Carolina Maiab (Cedeplar-UFMG); Cristina Guimarães Rodrigues (Cedeplar-UFMG)
    Abstract: The aim of this paper is to present healthcare expenditures indicators of the private healthcare system in Brazil. We use administrative records of a healthcare insurance company that provide collective contracts to its employees. The indicators are classified according to the type of healthcare and age groups. Healthcare classification contemplates four types of services: doctor visits, inpatient care, exams and other types of healthcare services. We also discriminate healthcare indicators by survivorship status. The main results points out that: 1) the desegregation by survivorship status is very important to healthcare expenditures projections – the annual average healthcare expenditure to dead individuals is R$76.000,00 (seventy six thousand of reais) whereas this value is about R$2000,00 (two thousand of reais) for alive individuals: 2) on average women expend more than men along the lifecycle; 3) the expenditure ratio between the oldest and the youngest group is eight times.
    Keywords: health insurance sector, expenditure indicators, health services
    JEL: I10 I11
    Date: 2010–09
  11. By: Martín Gonzalez Eiras (Department of Economics, Universidad de San Andres & CONICETAuthor-Name: Leandro Arozamena)
    Abstract: Existing models of foreign debt and insurance capacity assume that the costs and benefits of default are evenlydistributed across agents in the defaulting country. To study how tensions among different groups inside a country affect its sovereign risk management I consider an economy whose agents differ in their life spans. This makes the cost and benefits of default to be different across generations. The country is able to come up with a positive level of insurance by linking intergenerational transfers to the default decision of its citizens. This results is found both for the case of a Ramsey planner who cares for all present and future generations, and when decisions are taken by majority vote among living generations.
    Keywords: intergenerational, conflict, risk sharing
    JEL: F34 H55 D61 D72
    Date: 2010–09
  12. By: Ferro, Gustavo; Castagnolo, Fermando
    Abstract: The insurance industry, in its different business lines, concentrates 11 percent of the World financial assets. As in all the remaining financial activities, it is object of comprehensive regulation of structure, conduct and performance (with diverse emphasis), besides social scrutiny. The objective of the present article is to discern the phenomena behind the recent financial crisis and its impact in the insurance industry, and to contribute to the debate on more/less market and/or scarce/excessive regulation. This paper yields also an empirical approach which consists in examining the character of the market discipline as a substitute or complement of the prudential regulation. The proposals in implementation in the European Union, known as Solvency II, add the regulatory pillars of capitalization, supervision and market discipline. In other places, such as New Zealand, confidence is put on the latter exclusively. The research questions which give structure to the document are: why to regulate insurance markets? How are they regulated around the world? Which were the origins of the crisis, and how did it impact on the insurance market? What is new in the regulatory debate? Did market discipline worked? Did it replace or complement prudential supervision? What did we learn? After a detailed debate on the first four questions, we analyze empirically the existence of market discipline in the insurance markets of Germany, Spain, New Zealand and the United Kingdom. We conclude on the complementary role of market discipline with respect to prudential supervision.
    Keywords: insurance; regulation; financial crisis
    JEL: L51 G22
    Date: 2010–10–01
  13. By: Cavatorta, Elisa; Pieroni, Luca
    Abstract: This paper explores the interactions between the risk of food insecurity and the decision to health insure in the Palestinian Territories. The risk of adverse health conditions is insurable; the risk of food insecurity is a background risk and no market insurance exists. The vulnerability to food insecurity influences the individual utility from health insuring. We present a competing risk model to reveal this interdependence. We specify the empirical model as a bivariate probit model and evaluate the impact of food insecurity on the household decision to health insure. We find evidence of significant complementarity between the risk of food insecurity and the propensity to health insure. The predicted conditional probabilities reveal that the propensity to health insure is higher in presence of food insecurity among Palestinian households. This study shows that, in presence of a background risk, there are complementarities among risks that policy should be mindful of.
    Keywords: Food insecurity; Health insurance; Competing risks; Bivariate Probit
    JEL: I11 O15 C35
    Date: 2010–09–07

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