nep-ias New Economics Papers
on Insurance Economics
Issue of 2011‒07‒02
six papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. The Impacts of the Affordable Care Act: How Reasonable Are the Projections? By Jonathan Gruber
  2. Financial Risks and the Pension Protection Fund:Can It Survive Them? By David Blake; John Cotter; Kevin Dowd
  3. Pricing Full Deposit Insurance in Germany amidst the Financial Crisis 2008-2010 By Markus R. Kosters; Stefan T.M. Streatmans; Mario Maggi
  4. Competition Leverage: How the Demand Side Affects Optimal Risk Adjustment By Bijlsma, M.; Boone, J.; Zwart, G.
  5. Disaster risk financing and contingent credit : a dynamic analysis By Clarke, Daniel; Mahul, Olivier
  6. A Rights Revolution in Europe? Regulatory and judicial approaches to nondiscrimination in insurance By Deborah Mabbett

  1. By: Jonathan Gruber
    Abstract: The Patient Protection and Affordable Care Act (ACA) is the most comprehensive reform of the U.S. medical system in at least 45 years. The ACA transforms the non-group insurance market in the United States, mandates that most residents have health insurance, significantly expands public insurance and subsidizes private insurance coverage, raises revenues from a variety of new taxes, and reduces and reorganizes spending under the nation’s largest health insurance plan, Medicare. Projecting the impacts of such fundamental reform to the health care system is fraught with difficulty. But such projections were required for the legislative process, and were delivered by the Congressional Budget Office (CBO). This paper discusses the projected impact of the ACA in more detail, and describes the evidence that sheds light upon the accuracy of the projections. It begins by reviewing in broad details the structure of the ACA and then reviews evidence from a key case study that informs our understanding of the ACA’s impacts: a comparable health reform that was carried out in Massachusetts four years earlier. The paper discusses the key results from that earlier reform and what they might imply for the impacts of the ACA. The paper ends with a discussion of the projected impact of the ACA and offers some observations on those estimates.
    JEL: H3 I18
    Date: 2011–06
  2. By: David Blake (city University London); John Cotter (University College Dublin, Ireland); Kevin Dowd (The University of Nottingham, UK)
    Abstract: This paper discusses the financial risks faced by the UK Pension Protection Fund (PPF) and what, if anything, it can do about them. It draws lessons from the regulatory regimes under which other financial institutions, such as banks and insurance companies, operate and asks why pension funds are treated differently. It also reviews the experience with other government-sponsored insurance schemes, such as the US Pension Benefit Guaranty Corporation, upon which the PPF is modelled. We conclude that the PPF will live under the permanent risk of insolvency as a consequence of the moral hazard, adverse selection, and, especially, systemic risks that it faces.
    Date: 2011–06–24
  3. By: Markus R. Kosters (School of Business and Economics, Maastricht University); Stefan T.M. Streatmans (Maastricht research school of Economics of Technology and Organizations); Mario Maggi (Department of Economics and Quantitative Methods, University of Pavia)
    Abstract: This paper investigates the pricing of full deposit insurance in Germany in the context of its political promise by the German government. We implement the characteristics of the mutual guarantee framework of German banks and the specifics of the German deposit insurance system into a Monte Carlo model. The analysis suggests that banks have an incentive to increase their riskiness if they do not have to bear the fair value of the insurance costs of their deposits. On the other hand, the government should incentivise banks to reduce their size and become more specialized to achieve better diversification in the German banking landscape.
    Keywords: Asset pricing, financial crisis, deposit insurance, mutual guarantee framework
    Date: 2011–05
  4. By: Bijlsma, M.; Boone, J.; Zwart, G. (Tilburg University, Center for Economic Research)
    Abstract: We study optimal risk adjustment in imperfectly competitive health insurance markets when high-risk consumers are less likely to switch insurer than low-risk consumers. First, we find that insurers still have an incentive to select even if risk adjustment perfectly corrects for cost differences among consumers. Consequently, the outcome is not efficient even if cost differences are fully compensated. To achieve first best, risk adjustment should overcompensate for serving high-risk agents to take into account the difference in mark- ups among the two types. Second, the difference in switching behavior creates a trade off between efficiency and consumer welfare. Reducing the difference in risk adjustment subsidies to high and low types increases consumer welfare by leveraging competition from the elastic low-risk market to the less elastic high-risk market. Finally, mandatory pooling can increase consumer surplus even further, at the cost of efficiency.
    Keywords: health insurance;risk adjustment;imperfect competition;leverage
    JEL: I11 I18 G22 L13
    Date: 2011
  5. By: Clarke, Daniel; Mahul, Olivier
    Abstract: This paper aims to assist policy makers interested in establishing or strengthening financial strategies to increase the financial response capacity of developing country governments in the aftermath of natural disasters, while protecting their long-term fiscal balance. Contingent credit is shown to increase the ability of governments to self-insure by relaxing their short-term liquidity constraints. In many situations, contingent credit is most effectively used to facilitate risk retention for middle layers, with reserves used for bottom layers and risk transfer (for example, reinsurance) for top layers. Discussions with governments on the optimal use of contingent credit instruments as part of a sovereign catastrophe risk financing strategy can be guided by the output of a dynamic financial analysis model specifically developed to allow for the provision of contingent credit, in addition to reserves and/or reinsurance. This model is illustrated with three country case studies: agricultural production risks in India; tropical cyclone risk in Fiji; and earthquake risk in Costa Rica.
    Keywords: Insurance&Risk Mitigation,Access to Finance,Debt Markets,Bankruptcy and Resolution of Financial Distress,Financial Intermediation
    Date: 2011–06–01
  6. By: Deborah Mabbett
    Abstract: In a recent decision, the European Court of Justice has ruled that insurers cannot discriminate on grounds of sex in setting premiums or determining benefits. This paper discusses the background to this decision. It asks whether we are seeing a US-style ‘rights revolution’, fuelled by judicial activism, as suggested by Dobbin et al’s hypothesis of ‘the strength of weak states’ or Kagan and Kelemen’s account of ‘adversarial legalism’. It is shown that neither of these theories captures the distinctive nature of the ECJ’s intervention. An industry-friendly policy was pursued in regulatory venues, but this was overridden by the ECJ’s interpretation of the fundamental right of equal treatment. However, it is also shown that the judicial defence of fundamental rights is a weak basis for social policy, and does not foreshadow a revolution in the development of social rights in Europe.
    Keywords: Adversarial legalism, discrimination, Gender Directive, insurance, weak state
    Date: 2011–05

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