nep-ias New Economics Papers
on Insurance Economics
Issue of 2013‒03‒30
five papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Health Insurance, Annuities, and Public Policy By Kai Zhao
  2. The Impact of Unemployment Insurance Extensions On Disavility Insurance Application and Allowance Rates By Matthew S. Rutledge
  3. The Articulation Effect of Government Policy: Health Insurance Mandates Versus Taxes By Keith Marzilli Ericson; Judd B. Kessler
  4. Underwriting Apophenia and Cryptids: Are Cycles Statistical Figments of our Imagination? By M. Martin Boyer
  5. The Market for Reinsurance By M. Martin Boyer; Théodora Dupont-Courtade

  1. By: Kai Zhao (University of Western Ontario)
    Abstract: This paper studies the effects of health shocks on the demand for health insurance and annuities, precautionary saving, and the welfare implications of public policies in a simple life-cycle model. I show that when the health shock simultaneously increases health expenses and reduces longevity, the following results can be obtained via closed-form solutions. First, utility-maximizing agents would neither fully insure their uncertain health expenses nor fully annuitize their wealth, even in the absence of market frictions and bequest motives. Second, the effect of uncertain health expenses on precautionary saving may be smaller than what has been found in previous studies. Under certain conditions, uncertain health expenses may even reduce precautionary saving. Third, mandatory health insurance (e.g. public health insurance) tends to benefit the poor more, while mandatory annuitization (e.g. public pension) is more likely to favor the rich. A simple numerical application of the model to the US long term care (LTC) insurance market suggests that the simultaneous effect of health shock on health expenses and longevity is a quantitatively important reason why agents (especially the rich) do not purchase more private LTC insurance.
    Keywords: Saving; Annuities; Health Insurance; Social Security; Medicare
    Date: 2013
  2. By: Matthew S. Rutledge
    Abstract: Both unemployment insurance (UI) extensions and the availability of disability benefits have disincentive effects on job search. But UI extensions can reduce the efficiency cost of disability benefits if UI recipients delay disability application until they exhaust their unemployment benefits. This paper, the first to focus on the effect of UI extensions on disability applications, investigates whether UI eligibility, extension, and exhaustion affect the timing of disability applications and the composition of the applicant pool. Jobless individuals are significantly less likely to apply to Social Security Disability Insurance (SSDI) during UI extensions, and significantly more likely to apply when UI is ultimately exhausted. Healthier potential applicants appear more likely to delay, as state allowance rates increase after a new UI extension. Simulations find that a 13-week UI extension decreases SSDI and Medicare costs, offsetting about half of the increase in UI payments; this suggests that the benefits of UI extensions may be understated — permanent disability benefits are diverted to shorter-run unemployment benefits and, potentially, new jobs, while easing the burden on the nearly insolvent SSDI Trust Fund.
    Date: 2013–03
  3. By: Keith Marzilli Ericson; Judd B. Kessler
    Abstract: We examine how the articulation of government policy affects behavior. Our experiment compares a government mandate to purchase health insurance to a financially equivalent tax on the uninsured. Participants report their probability of purchasing health insurance under one of the two articulations of the policy. The experiment was conducted in four waves, from December 2011 to November 2012. We document the controversy over the Affordable Care Act’s insurance mandate provision that changed the political discourse during the year. Pre-controversy, articulating the policy as a mandate, rather than a financially equivalent tax, increased probability of insurance purchase by 10.6 percentage points — an effect comparable to a $1000 decrease in annual premiums. After the controversy, the mandate is no more effective than the tax. Our results show that how a policy is articulated affects behavior and that persuasion and public opinion management can help achieve policy objectives at lower cost.
    JEL: D02 D03 D04 H2 H3 K42
    Date: 2013–03
  4. By: M. Martin Boyer
    Abstract: The Lloyd’s 2007 Survey of Underwriters states that "for the third year running, managing the cycle emerged as the most important challenge for the industry, by some margin". The contention is of course that underwriting cycles exist in property and casualty insurance and are economically significant. Using a meta-analysis of published papers in the area of insurance economics, I show that the evidence in favor of underwriting cycles is misleading or even completely absent. There is in fact no statisical or economic support for the existence of underwriting cycles. This means that firm profitability in the property and casualty insurance industry is not cyclical; we only observe profitability going up or down with no meaningful pattern. It consequently follows that pricing in the property and casualty insurance industry is not incompatible with that of a competitive market. <P>
    Keywords: Property and liability insurance, underwriting profits, insurance pricing,
    JEL: G22
    Date: 2013–03–01
  5. By: M. Martin Boyer; Théodora Dupont-Courtade
    Abstract: Using a unique proprietary dataset of primary insurers and reinsurers, we analyze the structure of the reinsurance market. The dataset, which spans six years, contains the quotes for different reinsurance layers, for different clients, for different treaties, and for different lines of business. This is the first study that documents the actual structure of the global reinsurance market using actual quotes, and not only the wining quote, for a large number of layers of a large number of reinsurance treaties. <P>
    Keywords: Reinsurance, reinsurance tranches, risk management, market structure,
    JEL: G34 G22
    Date: 2013–03–01

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