nep-ias New Economics Papers
on Insurance Economics
Issue of 2010‒11‒13
eight papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Systemic Weather Risk and Crop Insurance: The Case of China By Wei Xu; Ostap Okhrin; Martin Odening; Ji Cao
  2. The Impact of Civil Unions on Hawai`i’s Economy and Government By Sumner La Croix; Kimberly Burnett
  3. Korea’s Unemployment Insurance in the 1998 Asian Financial Crisis and Adjustments in the 2008 Global Financial Crisis By Sung Teak Kim
  4. Ruin probability in the presence of risky investments By Serguei Pergamenchtchikov; Zeitouny Omar
  5. Bank capital, liquidity creation and deposit insurance By Fungácová, Zuzana; Weill, Laurent; Zhou, Mingming
  6. Comparing Racial and Immigrant Health Status and Health Care Access in Later Life in Canada and the United States By Steven G. Prus; Rania Tfaily; Zhiqiu Li
  7. To Regulate, Litigate, or Both By Helland, Eric; Klick, Jonathan
  8. Disability in Belgium: there is more than meets the eye By Alain Jousten; Mathieu Lefebvre; Sergio Perelman

  1. By: Wei Xu; Ostap Okhrin; Martin Odening; Ji Cao
    Abstract: The supply of affordable crop insurance is hampered by the existence of systemic weather risk which results in large risk premiums. In this article, we assess the systemic nature of weather risk for 17 agricultural production regions in China and explore the possibility of spatial diversification of this risk. We simulate the buffer load of hypothetical temperature-based insurance and investigate the relation between the size of the buffer load and the size of the trading area of the insurance. The analysis makes use of a hierarchical Archimedean copula approach (HAC) which allows flexible modeling of the joint loss distribution and reveals the dependence structure of losses in different insured regions. Our results show a significant decrease of the required risk loading when the insured area expands. Nevertheless, a considerable part of undiversifiable risk remains with the insurer. We find that the spatial diversification effect depends on the type of the weather index and the strike level of the insurance. Our findings are relevant for insurers and insurance regulators as they shed light on the viability of private crop insurance in China.
    Keywords: crop insurance, systemic weather risk, hierarchical Archimedean copulas
    JEL: C14 Q19
    Date: 2010–10
  2. By: Sumner La Croix (Professor, Department of Economics, University of Hawai`i -Mānoa); Kimberly Burnett (Assistant Specialist, University of Hawai`i Economic Research Organization, University of Hawai`i - Mānoa)
    Abstract: On 29 April 2010, the Hawai`i State Legislature passed HB 444, a measure that allows same-sex and opposite-sex couples to enter into civil unions. This report provides quantitative and qualitative measures of the impact of civil unions on the Hawai`i economy, Hawai`i businesses, and the State of Hawai`i’s budget. More specifically, we examine the effect of civil unions on tourism arrivals to Hawai`i; state government revenues and expenditures; employer provision of health insurance to civil union partners and their dependents; and the family with civil union partners. We conclude that the Legalization of civil unions in Hawai`i will have only a very minimal impact on any aspect of Hawai`i’s economy and state government operations.
    Keywords: civil union, health insurance, visitor arrivals, Hawai`i
    JEL: J12 K36 I18
    Date: 2010–05
  3. By: Sung Teak Kim
    Abstract: This paper analyzes the impacts of the 1998 and 2008 financial crises on the Korean labor market. They study the historical background of the Korean Employment Insurance System and the change of labor policies from the 1998 Asian financial crisis to the current 2008 global financial crisis. While it is arguable to say that the expansion of the social welfare system in the Republic of Korea is main source of difference between the two crises, it is certain that the social welfare system is one of the influential factors that helped overcome the problems of the global financial crisis. [ADBI Working Paper 214]
    Keywords: Korean, labor, market, Asian, financial, global
    Date: 2010
  4. By: Serguei Pergamenchtchikov (LMRS); Zeitouny Omar (LMRS)
    Abstract: We consider an insurance company in the case when the premium rate is a bounded non-negative random function $c_\zs{t}$ and the capital of the insurance company is invested in a risky asset whose price follows a geometric Brownian motion with mean return $a$ and volatility $\sigma>0$. If $\beta:=2a/\sigma^2-1>0$ we find exact the asymptotic upper and lower bounds for the ruin probability $\Psi(u)$ as the initial endowment $u$ tends to infinity, i.e. we show that $C_*u^{-\beta}\le\Psi(u)\le C^*u^{-\beta}$ for sufficiently large $u$. Moreover if $c_\zs{t}=c^*e^{\gamma t}$ with $\gamma\le 0$ we find the exact asymptotics of the ruin probability, namely $\Psi(u)\sim u^{-\beta}$. If $\beta\le 0$, we show that $\Psi(u)=1$ for any $u\ge 0$.
    Date: 2010–11
  5. By: Fungácová, Zuzana (BOFIT); Weill, Laurent (BOFIT); Zhou, Mingming (BOFIT)
    Abstract: This paper examines how the introduction of deposit insurance influences the relationship between bank capital and liquidity creation. As discussed by Berger and Bouwman (2009), there are two competing hypotheses on this relationship which can be influenced by the presence of deposit insurance. The introduction of a deposit insurance scheme in an emerging market, Russia, provides a natural experiment to investigate this issue. We study three alternative measures of bank liquidity creation and perform estimations on a large set of Russian banks. Our findings suggest that the introduction of the deposit insurance scheme exerts a limited impact on the relationship between bank capital and liquidity creation and does not change the negative sign of the relationship. The implication is that better capitalized banks tend to create less liquidity, which supports the “financial fragility/crowding-out” hypothesis. This conclusion has important policy implications for emerging countries as it suggests that bank capital requirements implemented to support financial stability may harm liquidity creation.
    Keywords: bank capital; liquidity creation; deposit insurance; Russia
    JEL: G21 G28 G38 P30 P50
    Date: 2010–11–05
  6. By: Steven G. Prus; Rania Tfaily; Zhiqiu Li
    Abstract: Little comparative research exists on health experiences and conditions of minority groups in Canada and the United States, despite both countries having a racially diverse population with a signifi cant proportion of immigrants. This article explores race and immigrant disparities in health and health care access across the two countries. The study focus was on middle and old age given the change and increasing diversity in health and health care policy, such as Medicare. Logistic regression analysis of data from the 2002–2003 Joint Canada/United States Survey of Health shows that the joint effect of race and nativity on health outcomes – health differences between native and foreign-born Whites and non- Whites – is largely insignifi cant in Canada but considerable in the U.S. Non-White native and foreign-born Americans within both 45-to-64 and 65-and-over age groups experience signifi cant disadvantage in health status and access to care, irrespective of health insurance coverage, demographic, socio-economic, and lifestyle factors.
    Keywords: health, obesity, health care, race, immigrant, Canada, United States
    JEL: I12
    Date: 2010–10
  7. By: Helland, Eric; Klick, Jonathan
    Abstract: In the United States insurance is regulated both by state insurance commissions and class action litigation. The interaction of these two systems has not been extensively studied. We examine four different facets of the regulation litigation tradeoff. The first is to examine whether regulator’s interest in a particular cause of action reduces the likelihood that class actions covering this cause of action will be filed in the regulator’s home state. We also examine several measures of regulatory stringency in the state to determine whether there is a substitution effect between regulatory action and litigation. We also examine whether class actions are less frequent when regulators issued an administrative decision on a particular issue previously or if there are no existing state laws on the particular issue. We examine the impact of electing judges on patterns of filing. The hypothesis is that elected judges are more sympathetic to plaintiffs and hence class actions are more likely to be filed in states that elect their judges. Lastly, we examine the impact of pervious litigation both in the state and the specific line of litigation.
    Date: 2010–02
  8. By: Alain Jousten; Mathieu Lefebvre; Sergio Perelman
    Abstract: The paper provides a perspective on the development of the Belgian disability insurance system. Using both survey and administrative data, it sketches a picture of the (changing) factors leading towards disability, as well as the outcomes in terms of program participation. The paper shows the key role of integrating other forms of early retirement programs into the analysis. The main findings are an unspectacular trend in the number of DI beneficiaries over time combined with a strong expansion of (early-) retirement schemes.
    Date: 2010

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