nep-ias New Economics Papers
on Insurance Economics
Issue of 2010‒12‒23
four papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Subscribing to Supplemental Health Insurance in France: A Dynamic Analysis of Adverse Selection By Carine Franc; Marc Perronnin; Aurélie Pierre
  2. Bilateral Trade, Openness and Asset Holdings By Jing Li; Alexander Szimayer
  3. Are Assets in Medical Savings Accounts Discounted? Evidence from a Natural Experiment in China By Maoyong Fan; Zhen Lei; Guoen Liu
  4. Do Multiple Financial Services Enhance the Poverty Outreach of Microfinance Institutions? By Koen Rossel-Cambier

  1. By: Carine Franc (Cermes, Inserm U988, CNRS UMR8211, IRDES); Marc Perronnin (IRDES institut for research and information in health economics); Aurélie Pierre (IRDES institut for research and information in health economics)
    Abstract: Adverse selection, which is well described in the theoretical literature on insurance, remains relatively difficult to study empirically. The traditional approach, which focuses on the binary decision of “covered” or “not”, potentially misses the main effects because heterogeneity may be very high among the insured. In the French context, which is characterized by universal but incomplete public health insurance (PHI), we study the determinants of the decision to subscribe to supplemental health insurance (SHI) in addition to complementary health insurance (CHI). This work permits to analyze health insurance demand at the margin. Using a panelized dataset, we study the effects of both individual state of health, which is measured by age and previous individual health spending, and timing on the decision to subscribe. One striking result is the changing role of health risk over time, illustrating that adverse selection occurs immediately after the introduction of SHI. After the initial period, the effects of health risks (such as doctors’ previous health expenditures) diminish over time and financial risks (such as dental and optical expenses and income) remain significant. These results may highlight the inconsistent effects of health risks on the demand for insurance and the challenges of studying adverse selection.
    Keywords: Supplemental health insurance, adverse selection, health insurance demand, longitudinal analysis.
    JEL: C23 D82 G22 I11
    Date: 2010–12
  2. By: Jing Li; Alexander Szimayer
    Abstract: We study the valuation of unit-linked life insurance contracts with surrender guarantees. Instead of solving an optimal stopping problem, we propose a more realistic approach accounting for policyholders’ rationality in exercising their surrender option. The valuation is conducted at the portfolio level by assuming the surrender intensity to be bounded from below and from above. The lower bound corresponds to purely exogenous surrender and the upper bound represents the limited rationality of the policyholders. The valuation problem is formulated by a valuation PDE and solved with the finite difference method. We show that the rationality of the policyholders has a significant effect on average contract value and hence on the fair contract design. We also present the separating boundary between purely exogenous surrender and endogenous surrender. This provides implications on the predicted surrender activity of the policyholders.
    Keywords: unit-linked life insurance contracts, surrender guarantee, limited rationality, fair contract analysis
    JEL: G13 G22 C65
    Date: 2010–12
  3. By: Maoyong Fan (Department of Economics, Ball State University); Zhen Lei (Department of Energy and Mineral Engineering, Penn State University); Guoen Liu (Guanghua School of Management at Peking University)
    Abstract: In China, Medical Savings Accounts (MSAs) are a major tool financing health care consumption in urban areas. Whether MSAs control medical expenditures and encourage saving is based on an assumption that enrollees treat the MSA money the same as their pocket money. This assumption has never been tested. Given the mandatory and restrictive nature of MSAs in China, we hypothesize that enrollees may discount their MSAs and spend them prematurely. To test whether assets in MSAs are discounted, we take advantage of a policy change as a natural experiment in city of Zhenjiang. The policy change affected different age cohorts differently in terms of financial contributions to MSAs. Empirical results show that a reduction in MSAs caused enrollees to reduce their annual medical expenditures by more than the amount of the MSA reduction. The effect was largest for those with intermediate medical expenditures, who were more likely to exhaust their MSAs and pay out-of-pocket expenses. The results are consistent with the hypothesis that enrollees discount their MSAs. The smaller their MSAs are, the higher the chance of paying medical expenditures out-of-pocket (the "true" price): when forced to pay the "true" price of medical services, they consume less.
    Keywords: Medical Savings Account, Natural Experiment, Medical Expenditures, Health
    JEL: I11 I18 O12
    Date: 2010–12
  4. By: Koen Rossel-Cambier
    Abstract: Documented deficiencies in traditional social transfer mechanisms have led to the emergence of alternative methods for reducing poverty. In many countries, microfinance institutions (MFIs) have become popular instruments for redistributive pro-poor policies. While microcredit programmes have undoubtedly improved the lives of millions of poor households, they are also criticised for not being inclusive enough to reach out to the poor and their specific needs. This paper explores if the current trend towards product diversification can be an appropriate policy response for enhanced poverty outreach, in particular when combining micro-credit with savings and insurance. By reviewing cross-sectional evidence of 250 microfinance schemes in Latin America and the Caribbean,one canfind positive effects of combined microfinance (CMF) on the breadth of outreach. Still, the contribution of CMF on the depth of poverty outreach is less evident, both viewed from an income-related and gender-sensitive lens. The findings suggest that the presence of savings is accompanied with a relatively lower participation of poor and female clients. Practitioners and policy makers –when designing CMF- must ensure that pragmatic mechanisms are in place to ensure that the neediest are reached.
    Keywords: microfinance; combined microfinance; microinsurance; microcredit; microsavings; poverty; social inclusion
    JEL: C12 G21 G22 L31 O54
    Date: 2010–12

This nep-ias issue is ©2010 by Soumitra K Mallick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.