nep-ias New Economics Papers
on Insurance Economics
Issue of 2011‒05‒14
eight papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Estimates of Crowd-Out from a Public Health Insurance Expansion Using Administrative Data By Laura Dague; Thomas DeLeire; Donna Friedsam; Daphne Kuo; Lindsey Leininger; Sarah Meier; Kristen Voskuil
  2. Surrender triggers in life insurance: classification and risk predictions By Xavier Milhaud; Stéphane Loisel; Véronique Maume-Deschamps
  3. Estimation of the parameters of a Markov-modulated loss process in insurance By Armelle Guillou; Stéphane Loisel; Gilles Stupfler
  4. Longevity Risk and Natural Hedge Potential in Portfolios Of Life Insurance Products: The Effect of Investment Risk By Stevens, R.S.P.; De Waegenaere, A.M.B.; Melenberg, B.
  5. Modeling Yield Risk Under Technological Cahnge: Dynamic Yield Distribution and the U.S Crop Insurance Program By Zhu, Ying; Barry, Goodwin; Ghosh, Sujiit
  6. Pro-Cyclical Unemployment Benefits? Optimal Policy in an Equilibrium Business Cycle Model By Kurt Mitman; Stanislav Rabinovich
  7. The Labor Supply Effects of Disability Insurance: Evidence from Automatic Conversion Using Administrative Data By Nicole Maestas; Jae Song
  8. Physician Payment Mechanisms, Hospital Length of Stay and Risk of Readmission: a Natural Experiment By Damien Échevin; Bernard Fortin

  1. By: Laura Dague; Thomas DeLeire; Donna Friedsam; Daphne Kuo; Lindsey Leininger; Sarah Meier; Kristen Voskuil
    Abstract: We use a combination of administrative and survey data to estimate the fraction of individuals newly enrolled in public health coverage (Wisconsin’s combined Medicaid and CHIP program) that had access to private, employer-sponsored health insurance at the time of their enrollment and the fraction that dropped this coverage. We estimate that after expansion of eligibility for public coverage, approximately 20% of new enrollees had access to private health insurance at the time of enrollment and that only 8% dropped this coverage (with the remaining 12% having both private and public coverage). We also identify an “upper bound” estimate, which suggests that the percentage of new enrollees with private insurance coverage at the time of enrollment is, at most, 27%. These estimates of crowd-out are relatively low compared with estimates from the literature based on Medicaid and CHIP expansions, although based both on different data and on a different method.
    JEL: I18
    Date: 2011–05
  2. By: Xavier Milhaud (SAF - Laboratoire de Sciences Actuarielle et Financière - Université Claude Bernard - Lyon I : EA2429, Axa Cessions - AXA); Stéphane Loisel (SAF - Laboratoire de Sciences Actuarielle et Financière - Université Claude Bernard - Lyon I : EA2429); Véronique Maume-Deschamps (SAF - Laboratoire de Sciences Actuarielle et Financière - Université Claude Bernard - Lyon I : EA2429)
    Abstract: This paper shows that some policy features are crucial to explain the decision of the policyholder to surrender her contract. We point it out by applying two segmentation models to a life insurance portfolio: the Logistic Regression model and the Classification And Regression Trees model. Protection as well as Savings lines of business are impacted, and results clearly explicit that the profit benefit option is highly discrimi- nant. We develop the study with endowment products. First we present the models and discuss their assumptions and limits. Then we test different policy features and policyholder's characteristics to be lapse triggers so as to segment a portfolio in risk classes regarding the surrender choice : duration and profit benefit option are essential. Finally, we explore the main dfferences of both models in terms of operational results.
    Date: 2011
  3. By: Armelle Guillou (IRMA - Institut de Recherche Mathématique Avancée - CNRS : UMR7501 - Université de Strasbourg); Stéphane Loisel (SAF - Laboratoire de Sciences Actuarielle et Financière - Université Claude Bernard - Lyon I : EA2429); Gilles Stupfler (IRMA - Institut de Recherche Mathématique Avancée - CNRS : UMR7501 - Université de Strasbourg)
    Abstract: We present a new model of loss processes in insurance. The process is a couple $(N, \, L)$ where $N$ is a univariate Markov-modulated Poisson process (MMPP) and $L$ is a multivariate loss process whose behaviour is driven by $N$. We prove the strong consistency of the maximum likelihood estimator of the parameters of this model, and present an EM algorithm to compute it in practice. The method is illustrated with simulations and real sets of insurance data.
    Date: 2011–04–30
  4. By: Stevens, R.S.P.; De Waegenaere, A.M.B.; Melenberg, B. (Tilburg University, Center for Economic Research)
    Abstract: Payments of life insurance products depend on the uncertain future evolution of survival probabilities. This uncertainty is referred to as longevity risk. Existing literature shows that the effect of longevity risk on single life annuities can be substantial, and that there exists a (natural) hedge potential from combining single life annuities with death benefits or from investing in survivor swaps. The effect of financial risk on these hedge effects is typically ignored. The aim of this paper is to quantify longevity risk in portfolios of mortality-linked assets and liabilities, taking into account the effect of financial risk. We find that investment risk significantly affects the impact of longevity risk in life insurance products. It also significantly affects the hedge potential that arises from combining life insurance products, or from investing in longevity-linked assets. For example, our results suggest that ignoring the effect of financial risk can lead to severe overestimation of the natural hedge potential from death benefits, and underestimation of the hedge effects of survivor swaps.
    Keywords: Life insurance;life annuities;death benefits;survivor swaps;risk management;financial risk;longevity risk;insolvency risk;capital adequacy.
    JEL: G22 G23
    Date: 2011
  5. By: Zhu, Ying; Barry, Goodwin; Ghosh, Sujiit
    Abstract: The objective of this study is to evaluate and model the yield risk associated with major agricultural commodities in the U.S. We are particularly concerned with the nonstationary nature of the yield distribution, which primarily arises because of technological progress and changing environmental conditions. Precise risk assessment depends on the accuracy of modeling this distribution. This problem becomes more challenging as the yield distribution changes over time, a condition that holds for nearly all major crops. A common approach to this problem is based on a two-stage method in which the yield is first detrended and then the estimated residuals are treated as observed data and modeled using various parametric or nonparametric methods. We propose an alternative parametric model that allows the moments of the yield distributions to change with time. Several model selection techniques suggest that the proposed time-varying model outperforms more conventional models in terms of in-sample goodness-of-fit, out-of-sample predictive power and the prediction accuracy of insurance premium rates.
    Keywords: Crop Insurance, Model Comparison, Time-Varying Distribution, Financial Economics,
    Date: 2011–01
  6. By: Kurt Mitman (Department of Economics, University of Pennsylvania); Stanislav Rabinovich (Department of Economics, University of Pennsylvania)
    Abstract: We study the optimal provision of unemployment insurance (UI) over the business cycle. We consider an equilibrium Mortensen-Pissarides search and matching model with risk-averse workers and aggregate shocks to labor productivity. Both the vacancy creation decisions of firms and the search effort decisions of workers respond endogenously to aggregate shocks as well as to changes in UI policy. We characterize the optimal history-dependent UI policy. We find that, all else equal, the optimal benefit is decreasing in current productivity and decreasing in current unemployment. Optimal benefits are therefore lowest when current productivity is high and current unemployment is high. The optimal path of benefits reacts non-monotonically to a productivity shock. Following a drop in productivity, benefits initially rise in order to provide short-run relief to the unemployed and stabilize wages, but then fall significantly below their pre-recession level, in order to speed up the subsequent recovery. Under the optimal policy, the path of benefits is pro-cyclical overall. As compared to the existing US UI system, the optimal history-dependent benefits smooth cyclical fluctuations in unemployment and deliver non-negligible welfare gains.
    Keywords: Unemployment Insurance, Business Cycles, Optimal Policy, Search and Matching
    JEL: E24 E32 H21 J65
    Date: 2011–02–15
  7. By: Nicole Maestas (RAND); Jae Song (Social Security Administration)
    Abstract: We analyze a natural experiment generated by the interaction of the Social Security DI and OA programs at Full Retirement Age, when DI beneficiaries are automatically converted from the DI program to the OA retired worker program. At conversion benefit payments continue unchanged, however the DI program’s high implicit marginal tax rate on earnings is abruptly relaxed. We use administrative Social Security data for the universe of primary worker DI beneficiaries from the 1934-1942 birth cohorts observed in panel over the period of 1995-2008. Our estimates imply that the DI program depresses labor supply among even the oldest DI beneficiaries. In the context of the literature to date that has sought to establish an upper bound on the earnings losses caused by the presence of the DI program by using quasi-experimental variation occurring at the program entry margin, our use of quasi-experimental variation arising from the program exit margin, when individuals are already in their mid-60s and the dominant trend in labor force participation in the population at large is downward, suggests that our estimates are most appropriately viewed as a lower bound estimate of the residual work capacity of all beneficiaries.
    Date: 2011–04
  8. By: Damien Échevin; Bernard Fortin
    Abstract: We provide an analysis of the effect of physician payment methods on their hospital patients’ length of stay and risk of readmission. To do so, we exploit a major reform implemented in Quebec (Canada) in 1999. The Quebec Government introduced an optional mixed compensation (MC) scheme for specialist physicians working in hospital. This scheme combines a fixed per diem with a reduced fee for services provided, as an alternative to the traditional feefor-service system. We develop a simple theoretical model of a physician’s decision to choose the MC scheme. We show that a physician who adopts this system will have incentives to increase his time per clinical service provided. We demonstrate that as long as this effect does not improve his patients’ health by more than a critical level, they will stay more days in hospital over the period. At the empirical level, using a large patient-level administrative panel data set from a major teaching hospital, we estimate a model of transition between spells in and out of hospital analog to a difference-in-differences method. The model is based on a two-state Mixed Proportional Hazard approach. We find that the hospital length of stay of patients treated in departments that opted for the MC system increased on average by 10.8% (0.71 days). However, the risk of readmission to the same department with the same diagnosis does not appear to be overall affected by the reform. <P>Cet article présente une analyse de l’impact du mode de rémunération des médecins spécialistes sur la durée de séjour de leurs patients à l’hôpital et sur leur risque de ré-hospitalisation. À cette fin, nous exploitons une réforme majeure mise en place au Québec en 1999. Le gouvernement du Québec a introduit un mode de rémunération mixte optionnel pour les spécialistes travaillant en établissement. Ce mode de paiement combine un per diem fixe et une rémunération à l’acte partielle, comme alternative à la rémunération à l’acte traditionnelle. Nous développons d’abord un simple modèle théorique de la décision du médecin de choisir ou non la rémunération mixte. Nous montrons qu’un médecin qui adhère à la rémunération mixte sera incité à accroître le temps qu’il consacre par acte. Nous démontrons que dans la mesure où cet effet n’améliore pas la santé du patient au-delà d’un certain niveau critique, ce dernier séjournera plus longtemps à l’hôpital au cours de la période. Au niveau empirique, à l’aide d’une vaste base de données longitudinales dénominalisées portant sur des patients du Centre Hospitalier de l’Université de Sherbrooke, nous estimons un modèle de durée à l’hôpital et hors hôpital analogue à une approche différence-en-différences. Notre méthode d’estimation se fonde sur un modèle de risque proportionnel mixte à deux états. Selon nos résultats, la durée de séjour des patients traités par des médecins qui ont passé à la rémunération mixte se serait accrue en moyenne de 10,8 % (0,71 jour). Cependant, le risque de ré-hospitalisation dans un même département avec le même diagnostic n’aurait pas été affecté par la réforme au niveau global.
    Keywords: Physician payment mechanisms, mixed compensation, hospital length of stay, risk of re-hospitalisation; duration model, natural experiment., Mécanismes de rémunération des médecins, rémunération mixte, durée du séjour à de l'hôpital de séjour, risque de re-hospitalisation.
    JEL: I10 I12 I18 C41
    Date: 2011–04–01

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