nep-ias New Economics Papers
on Insurance Economics
Issue of 2012‒06‒05
five papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. The dynamics of insurance demand under liquidity constraints and insurer default risk: By Liu, Yanyan; Myers, Robert J.
  2. Bankruptcy as Implicit Health Insurance By Neale Mahoney
  3. Life Insurance Purchasing to Maximize Utility of Household Consumption By Erhan Bayraktar; Virginia R. Young
  4. Estimating the Tradeoff Between Risk Protection and Moral Hazard with a Nonlinear Budget Set Model of Health Insurance By Amanda E. Kowalski
  5. The Identity Oriented Brand Leadership Concept in the Insurance Business: Results of an Exploratory Empirical Study By Regine Kalka; Katharina Juliana Schmidt

  1. By: Liu, Yanyan; Myers, Robert J.
    Abstract: Low demand for micro-insurance has been a prominent problem in developing countries. We study the dynamics of insurance demand by risk-averse farmers who can borrow and lend subject to a credit constraint and who also perceive a risk of insurer default. Credit constraints and the possibility of insurer default both reduce the demand for insurance. We then propose an alternative insurance design that allows farmers to enter an insurance contract while delaying payment of the premium until the end of the insured period. We show how this alternative design can increase insurance take-up by relaxing the liquidity constraint and assuaging farmers' concerns about insurer default. We also investigate the effects of the associated problem of farmers reneging on their delayed premium payment if the insured event does not occur.
    Keywords: Insurance, Agricultural, delayed premium payment, insurance demand, liquidity constraint, insurer default,
    Date: 2012
  2. By: Neale Mahoney
    Abstract: This paper examines the implicit health insurance households receive from the ability to declare bankruptcy. Exploiting cross-state and within-state variation in asset exemption law, I show that uninsured households with greater seizable assets make higher out-of-pocket medical payments, conditional on the amount of care received. In turn, I find that households with greater wealth-at-risk are more likely to hold health insurance. The implicit insurance from bankruptcy distorts the insurance coverage decision. Using a microsimulation model, I calculate that the optimal Pigovian penalties are similar on average to the penalties under the Affordable Care Act (ACA).
    JEL: H51 K35
    Date: 2012–05
  3. By: Erhan Bayraktar; Virginia R. Young
    Abstract: We determine the optimal amount of life insurance for a household of two wage earners. We consider the simple case of exponential utility, thereby removing wealth as a factor in buying life insurance, while retaining the relationship among life insurance, income, and the probability of dying and thus losing that income. For insurance purchased via a single premium or premium payable continuously, we explicitly determine the optimal death benefit. We show that if the premium is determined to target a specific probability of loss per policy, then the rates of consumption are identical under single premium or continuously payable premium. Thus, not only is equivalence of consumption achieved for the households under the two premium schemes, it is also obtained for the insurance company in the sense of equivalence of loss probabilities.
    Date: 2012–05
  4. By: Amanda E. Kowalski
    Abstract: Insurance induces a well-known tradeoff between the welfare gains from risk protection and the welfare losses from moral hazard. Empirical work traditionally estimates each side of the tradeoff separately, potentially yielding mutually inconsistent results. I develop a nonlinear budget set model of health insurance that allows for the calculation of both sides of the tradeoff simultaneously, allowing for a relationship between moral hazard and risk protection. An important feature of this model is that it considers nonlinearities in the consumer budget set that arise from deductibles, coinsurance rates, and stoplosses that alter moral hazard as well as risk protection relative to no insurance. I illustrate the properties of my model by estimating it using data on employer sponsored health insurance from a large firm. Within my empirical context, the average deadweight losses from moral hazard substantially outweigh the average welfare gains from risk protection. However, the welfare impact of moral hazard and risk protection are both small relative to transfers from the government through the tax preference for employer sponsored health insurance and transfers from some agents to other agents through a common premium.
    JEL: H00
    Date: 2012–05
  5. By: Regine Kalka (Department of Economics of the Duesseldorf University of Applied Sciences); Katharina Juliana Schmidt (Department of Economics of the Duesseldorf University of Applied Sciences)
    Abstract: Focus of this article will be the question to which extent the concept of the identity oriented brand leadership is established in the insurance business and how it should be implemented in ideal case. First of all, it is the objective is develop a theoretical benchmark for the identity oriented brand leadership for services and insurances in particular, secondly compare it with practice in insurance companies. First there will be a short theoretical representation of the insurance market and the concept of the identity oriented brand leadership. In this regard especially the effects are obvious, the constitutive distinctive marks of services have on brand leadership. Due to the characteristics of services, the internal identity oriented brand leadership plays a major role in this article. According to that concept the employees’ brand knowledge and brand commitment result in brand citizenship behavior. In turn there are other variables that have an effect on these determinants like: consistence and continuity, positive differentiation and operationalization of the brand as well as brand-corresponding human ressource acitivies, internal brand communication and brand-corresponding leadership. By expert interviews the status quo of the identity oriented brand leadership in practice becomes apparent and is compared with theory. It is obvious, that the identity oriented brand leadership basically exists in the insurance business but is not entirely comparable to theory. These gaps between practice and theory as well as some conspicuous characteristics of insurances lead to the given recommendations: Definition of a strong, individual brand identity, an integral management of the identity oriented brand leadership in insurance companies and a stronger integration of the employees and especially of the sales department. According to that, insurance companies shall develop a special concept for their exclusive agents.
    Abstract: Im Mittelpunkt des Beitrages steht die Frage, inwieweit die identitätsorientierte Markenführung in der Versicherungsbranche Einzug erhalten hat und wie sie umgesetzt werden sollte. Nach kurzer theoretischer Darstellung des Versicherungsmarktes, der identitätsorientierten Markenführung und der Auswirkungen der konstitutiven Merkmale von Dienstleistungen auf die Markenführung wird ein theoretischer Maßstab der identitätsorientierten Markenführung für Dienstleistungen bzw. Versicherungen im Besonderen aufgestellt. Eine große Rolle spielt auf Grund der Charakteristika von Dienstleistungen die innengerichtete, identitätsorientierte Markenführung sowie die damit einhergehende Annahme, dass Markenwissen und Brand Commitment der Mitarbeiter zu markenkonformem Verhalten, dem Brand Citizenship Behavior, führen kann. Auf die beiden Wirkungsgrößen können wiederum bestimmte Determinanten einwirken: Konsistenz und Kontinuität, positive Differenzierung und Operationalisierung der Marke sowie markenkonforme HR-Aktivitäten, interne Markenkommunikation und markenkonforme Führung. Mit Hilfe von Experteninterviews ist der Stand der identitätsorientierten Markenführung dann in der Praxis beleuchtet und mit der Theorie abgeglichen worden. Dabei ist offensichtlich, dass die identitätsorientierte Markenführung zwar schon ansatzweise in der Versicherungsbranche angelangt, mit der aufgestellten Theorie jedoch nicht vergleichbar ist. Diese Defizite zwischen Theorie und Praxis sowie einige auffallenden Besonderheiten bei Versicherungen führen zu den gegebenen Handlungsempfehlungen: Definition einer klaren, individuellen Markenidentität, ganzheitliche Steuerung der identitätsorientierten Markenführung, stärkere Einbeziehung der Mitarbeiter und der unterschiedlichen Vertriebsorgane im Speziellen. Dabei sollten Versicherungen gerade für Ausschließlichkeitsvertreter ein spezielles Konzept entwickeln.
    Keywords: Identity oriented brand leadership, Insurance Industry, Brand Knowledge, Brand Commitment, Brand Citizenship Behavior
    JEL: M3 G22
    Date: 2012–05

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