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on Insurance Economics |
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Issue of 2011‒02‒19
eleven papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Pierre Pestieau (CREPP - Center of Research in Public Economics and Population Economics - Université de Liège, CORE - Center for Operations Research and Econometrics - Université Catholique de Louvain, CEPR - Center for Economic Policy Research - CEPR, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Grégory Ponthière (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris) |
| Abstract: | The purpose of this paper is to examine the alternative explanatory factors of the so-called long term care insurance puzzle, namely the fact that so few people purchase a long term care insurance whereas this would seem to be a rational conduct given the high probability of dependence and the high costs of long term care. For that purpose, we survey various theoretical and empirical studies of the demand and supply of long term care insurance. We discuss the vicious circle in which the long term care insurance market is stuck: that market is thin because most people find the existing insurance products too expensive, and, at the same time, the products supplied by insurance companies are too expensive because of the thinness of the market. Moreover, we also show that, whereas some explanations of the puzzle involve a perfect rationality of agents on the LTC insurance market, others rely, on the contrary, on various behavioral imperfections. |
| Keywords: | long term care insurance ; dependence ; annuity puzzle |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-00564862&r=ias |
| By: | Hubert Janoss Kiss (University Complutense of Madrid); Ismael Rodriguez Lara (ERI-CES); Alfonso Rosa Garcia (University of Murcia) |
| Abstract: | We study the effects of deposit insurance and observability of previous actions on the emergence of bank runs by means of a controlled laboratory experiment. We consider three depositors in the line of a common bank. Depositors decide in sequence between withdrawing or keeping their money deposited. We have three different treatments in which depositors who keep the money have full insurance, are partially insured, or not insured at all in case of a bank run. We find that different levels of deposit insurance and the possibility of observing other depositors' actions reduce the likelihood of bank runs. The effect of these variables is not independent. Our data suggest that optimal deposit insurance should take into account the degree of observability: full and partial insurance are equally effective when decisions are observable, whereas full insurance is more likely to prevent bank runs when depositors do not observe other depositors' decisions. |
| Keywords: | deposit insurance, observability, bank runs, experimental economics |
| JEL: | G21 C90 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:dbe:wpaper:0211&r=ias |
| By: | Jesús Antón; Shingo Kimura |
| Abstract: | This report analyses the agricultural risk management system in Spain, applying a holistic approach that considers the interactions between all sources of risk, farmers. strategies and policies. The policy analysis is structured around three layers of risk that require a differentiated policy response: normal (frequent) risks that should be retained by the farmer, marketable intermediate risks that can be transferred through market tools, and catastrophic risk that requires government assistance. The Spanish risk management system is dominated by public insurance. Two main policy issues are discussed in this paper. First, the contribution of the insurance system to market efficiency; this comes from the information sharing arrangement in the public private partnership, rather than from the premium subsidies. Second, the insurance system as a device for catastrophic assistance. |
| Keywords: | public-private partnerships, risk-management, agricultural policy, catastrophic risk insurance, information sharing |
| JEL: | Q18 |
| Date: | 2011–02–10 |
| URL: | http://d.repec.org/n?u=RePEc:oec:agraaa:43-en&r=ias |
| By: | Das, Shubhabrata (IIM (Indian Institute of Management) Bangalore, India); Kratz, Marie (ESSEC Business School) |
| Abstract: | One possible way of risk management for an insurance company is to develop an early and appropriate alarm system before the possible ruin. The ruin is defined through the status of the aggregate risk process, which in turn is determined by premium accumulation as well as claim settlement out-go for the insurance company. The main purpose of this work is to design an effective alarm system, i.e. to define alarm times and to recommend augmentation of capital of suitable magnitude at those points to prevent or reduce the chance of ruin. In the three different methods outlined in this work, the alarms are signaled on the basis of the past history of the risk process and/or properties of claim distribution. Depending on the method adopted, the alarm time can be a random one or a xed parameter of the claim distribution (and premium function). The focus of this work is on devising a sequence of alarms, which are indeed fixed parameters based on characteristics of the risk process. To draw a fair measure of effectiveness of alarm system(s), comparison is drawn between a process equipped with an alarm system, with capital being added at the sound of every alarm, and the corresponding process without any alarm system but an equivalently higher initial capital. Detailed analytical results are obtained for general processes and this is backed up simulated performances when the loss severity has exponential, or Pareto or discrete logarithmic distribution. The formulation is eventually intended to be applied and extended for devising alarm system for reinsurance contracts. |
| Keywords: | alarm system; capital accumulation function; efficiency; quantitative risk management; risk process; ruin probability |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:essewp:dr-10008&r=ias |
| By: | Gary Clyde Hufbauer (Peterson Institute for International Economics) |
| Abstract: | The severe economic damage done by the global crisis of 2007-09 has reenergized calls to protect domestic products and producers in the United States. One example is a proposal to discriminate against foreign-owned insurance companies, using the tax code. The Neal bill (HR 3424), named after Congressman Richard Neal (D-MA), proposes to tax foreign-owned insurance companies doing business in the United States more heavily than US-owned insurance companies doing exactly the same business in the United States. If this bill or something like it is enacted, cautions Hufbauer, European countries are almost certain to bring a case against the United States in the World Trade Organization (WTO) and seek redress under US income tax treaties. Some European countries might consider tit-for-tat retaliatory legislation that would hurt US-owned insurance companies. While legal and retaliatory battles are waged, some foreign-owned insurance companies might reconsider their presence in the US insurance market--a role that has greatly benefited the US households and firms that suffered catastrophic losses in the wake of 9/11 and Hurricane Katrina. Equally important, it is a bad idea to deny US nonfinancial companies the benefit of competition between US-owned and foreign-owned firms in an industry that collects hundreds of billions of dollars of premiums annually. Tax abuse in the insurance market, if it exists, can be addressed without discriminating against foreign-owned companies. |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:iie:pbrief:pb10-9&r=ias |
| By: | Olga Melyukhina |
| Abstract: | This report analyzes the agricultural risk management system in the Netherlands, applying a holistic approach that considers the interactions between all sources of risk, farmers’ strategies and policies. The policy analysis is structured around three layers of risk that require a differentiated policy response: normal (frequent) risks that should be retained by the farmer, marketable intermediate risks that can be transferred through market tools, and catastrophic risk that requires government assistance. The main risk-related policies in the Netherlands are implemented as part of the EU policy framework. Specifically, national policies focus on the management of catastrophic risks by promoting public-private partnerships, such as Livestock Veterinary Fund, to manage the costs of livestock epidemics. The mutual insurance companies specialised in the coverage of specific types of risks are also promoted, with some of them receiving start-up capital and re-insurance support. The recently launched subsidised multi-peril yield insurance exploits the new opportunities created by the EU framework. |
| Keywords: | risk-management, agricultural policy, risk perceptions, pest and disease risk, Livestock Veterinary Fund, muti-peril insurance |
| JEL: | Q18 |
| Date: | 2011–02–10 |
| URL: | http://d.repec.org/n?u=RePEc:oec:agraaa:41-en&r=ias |
| By: | I. Duarte; D. Pinheiro; A. A. Pinto; S. R. Pliska |
| Abstract: | We introduce an extension to Merton's famous continuous time model of optimal consumption and investment, in the spirit of previous works by Pliska and Ye, to allow for a wage earner to have a random lifetime and to use a portion of the income to purchase life insurance in order to provide for his estate, while investing his savings in a financial market comprised of one risk-free security and an arbitrary number of risky securities driven by multi-dimensional Brownian motion. We then provide a detailed analysis of the optimal consumption, investment, and insurance purchase strategies for the wage earner whose goal is to maximize the expected utility obtained from his family consumption, from the size of the estate in the event of premature death, and from the size of the estate at the time of retirement. We use dynamic programming methods to obtain explicit solutions for the case of discounted constant relative risk aversion utility functions and describe new analytical results which are presented together with the corresponding economic interpretations. |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1102.2263&r=ias |
| By: | Shingo Kimura; Jesús Antón |
| Abstract: | This report analyzes the agricultural risk management system in Australia, applying a holistic approach that considers the interactions between all sources of risk, farmers. strategies and policies. The policy analysis is structured around three layers of risk that require a differentiated policy response: normal (frequent) risks that should be retained by the farmer, marketable intermediate risks that can be transferred through market tools, and catastrophic risk that requires government assistance. The main focus of risk management policy in Australia is drought risk and this paper assesses the objective and instruments of the country.s national drought policy framework. |
| Keywords: | climate change, risk-management, agricultural policy, catastrophic risk, drought policy, bio-security, cost sharing, index insurance |
| JEL: | Q18 |
| Date: | 2011–02–10 |
| URL: | http://d.repec.org/n?u=RePEc:oec:agraaa:39-en&r=ias |
| By: | Jesús Antón; Shingo Kimura; Roger Martini |
| Abstract: | This report analyses the agricultural risk management system in Canada, applying a holistic approach that considers the interactions between all sources of risk, farmers‘ strategies and policies. The policy analysis is structured around three layers of risk that require a differentiated policy response: normal (frequent) risks that should be retained by the farmer, marketable intermediate risks that can be transferred through market tools, and catastrophic risk that requires government assistance. The main policy issue in this report is the definition of the boundaries of these different layers. In Canada the system is overcrowded with policies and unable to signal risk layers in which farmers should take their own responsibility of management. Policies include AgriInvest, AgriInsurance, AgriStability, AgriRecovery and ad hoc measures. The analysis of AgriStability provides insights about the economics of agricultural income stabilization policies. |
| Keywords: | insurance, risk-management, agricultural policy, catastrophic risk income stabilization, policy targeting, montecarlo simulations |
| JEL: | Q18 |
| Date: | 2011–02–10 |
| URL: | http://d.repec.org/n?u=RePEc:oec:agraaa:40-en&r=ias |
| By: | Alvaro Forteza (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Guzmán Ourens (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República) |
| Abstract: | We present a new database of social security indicators for eleven Latin American countries designed to show how much they promise to pay in return to contributions. The indicators are based on micro-simulations according to existing norms. Our results indicate that most programs are progressive. In most programs, retirement ages do not have a sizeable impact on the rates of return, given the length of service. The length of service has a strong impact on the expected returns to contributions, mostly due to vesting period conditions. Because of this, several pension programs in Latin America may be exacerbating income risk. |
| Keywords: | Latin America, Social Security, Internal Rate of Return. |
| JEL: | H55 J14 J26 |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:ude:wpaper:1810&r=ias |
| By: | Milo Bianchi (Université Paris-Dauphine - Université Paris-Dauphine); Matteo Bobba (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris) |
| Abstract: | We explore whether financial constraints matter and which financial constraints matter the most in the choice of becoming an entrepreneur. We exploit a randomly assigned welfare program in rural Mexico to show that cash transfers significantly increase entry into entrepreneurship, thereby providing evidence of financial constraints. We then develop a simple model to highlight how liquidity and insurance constraints respond differently to the time profile of expected cash transfers. Exploiting the cross-households variation in the timing of these transfers, we find that current occupational choices are significantly more responsive to the amount of transfers expected for the future than to the amount of transfers currently received. We interpret these findings as evidence that the program has been effective in promoting micro-entrepreneurship by enhancing the willingness to bear risk. |
| Keywords: | financial constraints ; entrepreneurship ; insurance, liquidity |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-00564918&r=ias |