nep-ias New Economics Papers
on Insurance Economics
Issue of 2013‒04‒20
twelve papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Crop Insurance Savings Accounts: A Viable Alternative to Crop Insurance? By Colson, Gregory; Ramirez, Octavio A.; Fu, Shengfei
  2. Switching costs in competitive health insurance markets By Karine Lamiraud
  3. Effects of Crop Insurance Subsidies and Sodsaver on Land Use Change, The By Ruiqing Miao; David A. Hennessy; Hongli Feng
  4. Estimating losses to customers on account of mis-selling life insurance policies in India By Monika Halan; Renuka Sane; Susan Thomas
  5. Endogenous altruism, redistribution, and long term care By Cremer, Helmuth; Gahvari, Firouz; Pestieau, Pierre
  6. Linkage between Benefit Expenditure and Premium Burden: Long-Term Care Insurance in Japan By Katsuyoshi Nakazawa; Kota Sugahara; Minoru Kunizaki
  7. Projections of dynamic generational tables and longevity risk in Chile By Javier Alonso; David Tuesta; Diego Torres; Begona Villamide
  8. Redistributive Taxation in a Partial Insurance Economy By Kjetil Storesletten; Gianluca Violante; Jonathan Heathcote
  9. Executive Summary of the Sixth Ticket to Work Evaluation Report. By Gina Livermore; Bonnie O'Day; Yonatan Ben-Shalom; Sarah Prenovitz; Jody Schimmel; Craig Thornton
  10. Ticket to Work Participant Characteristics and Outcomes Under the Revised Regulations. By Gina A. Livermore; Denise Hoffman; Maura Bardos
  11. Bank bailouts, competition, and the disparate effects for borrower and depositor welfare By Calderon, Cesar; Schaeck, Klaus
  12. Medicare Health Plans and Dually Eligible Beneficiaries: Industry Perspectives on the Current and Future Market. By Marsha Gold; Winnie Wang; Gretchen Jacobson

  1. By: Colson, Gregory; Ramirez, Octavio A.; Fu, Shengfei
    Keywords: Agricultural and Food Policy, Agricultural Finance,
    Date: 2013–04
  2. By: Karine Lamiraud (Economics Department - ESSEC Business School)
    Abstract: In this paper we investigate the possible presence of switching costs when consumers are offered the opportunity to change their basic health insurance provider. We focus on the specific case of Switzerland which implemented a pure form of competition in basic health insurance markets. We identify several barriers to switching, namely choice overload, status quo bias, the possession of supplementary contracts for enrollees in bad health, firm's pricing strategies based on providing low price supplementary products, poor regulation of reserves and the limitations of the previous risk-equalization mechanism which left room for risk selection practices.
    Keywords: Brand loyalty ; Choice overload ; Competition among health insurers ; Status quo bias ; Supplementary health insurance ; Switching costs ; The Swiss case
    Date: 2013–01–01
  3. By: Ruiqing Miao; David A. Hennessy (Center for Agricultural and Rural Development (CARD)); Hongli Feng
    Abstract: There have long been concerns that federal crop insurance subsidies may significantly impact land use decisions. It is well known that classical insurance market information asymmetry problems can lead to a social excess of risky land entering crop production. We provide a conceptual model to show that the problem will arise absent any information failures. This is because the subsidy is (a) proportional to acres planted, and (b) greatest for the most production risky land. Using field-level yield data, we follow this observation through to establish the implications of subsidies for the extent of crop production, with particular emphasis on the US Prairie Pothole Region, where cropland growth is likely to have marked adverse environmental impacts. Simulation results show that up to 3% of land under federal crop insurance would have not been converted from grassland if there had been no crop insurance subsidies. Sodsaver, a provision that eliminates crop insurance and Supplemental Revenue Assistance payments in the first five years of crop production on new breakings, will reduce grassland conversion by 4.9% or less.
    Keywords: crop insurance, copula, grassland, land use, Sodsaver, Supplemental Revenue Assistance Payments JEL Code: Q15, Q18, Q24.
    Date: 2012–09
  4. By: Monika Halan (Mint); Renuka Sane (Indira Gandhi Institute of Development Research); Susan Thomas (Indira Gandhi Institute of Development Research)
    Abstract: This paper presents two approaches that use publicly available data to estimate the loss to investors from mis-selling of insurance products. The first approach uses the number of lapsed policies from the annual reports of the insurance regulator, IRDA, while the second method uses the persistence of premium payments that are reported in the annual reports of individual insurance companies. Both these methods arrive at a similar estimate a loss of about Rs.1.5 trillion, or $28 billion, to investors owing to mis-selling over the 2004-05 to 2011-12 period.
    Keywords: unit-linked insurance products; lapsed policies; persistence of premium
    JEL: D14 D18 G22
    Date: 2013–04
  5. By: Cremer, Helmuth (IDEI,TSE); Gahvari, Firouz (University Urbana); Pestieau, Pierre (CREPP, TSE, University of Liege)
    Abstract: This paper studies public provision of long term care insurance in a world in which family assistance is (i) uncertain and (ii) endogenous depending on the time parents spend raising their children. Public benefits will be paid in case of disability but cannot be combined with self-insurance or family aid. The benefits are provided equally to all recipients and financed by a proportional payroll tax. The paper shows that tax distortions imply that full insurance is undesirable. It characterizes the optimal tax and identifies the elements that determine its size. Of crucial importance are the extent of under-insurance, the effect of the tax on the probability of altruism, the distortionary effect of the tax, and, with wage heterogeneity, the covariance between the social mar- ginal utility of lifetime income and (i) earnings (positive effect) and (ii) the probability of altruism default (negative effect).
    Keywords: Long term care, uncertain altruism, endogenous probability, opting out,public insurance.
    JEL: H2 H5
    Date: 2013–03
  6. By: Katsuyoshi Nakazawa (University of Toyo); Kota Sugahara (University of Kyoto); Minoru Kunizaki (University of Aichi)
    Abstract: This study considers the discretionary premium-setting behavior of municipalities in the Japanese system of long-term care insurance (LTCI). Although, the LTCI system is managed by the municipality, but the financial system is controlled by national health insurers, and the municipality seems to have no discretion in managing it. However, we find that the premium-setting forecast of each municipality is different, contrary to the intention of the LTCI system. Adjustment subsidy does not function in line with the intention of the system, affecting the standard premium-setting process. Moreover, our empirical results show that municipalities seem to have discretion in premium setting. Cities, in particular, set premiums low, reflecting elderly political power. In addition, premiums are influenced elderly political power when few neighboring municipalities are available for reference. Municipalities do have leeway in premium setting, contrary to the intention of the LTCI system.
    Keywords: long-term care insurance, inter-jurisdictional interaction, financial transfer, Japan
    JEL: H73 H75 H77 I18 I38
    Date: 2013
  7. By: Javier Alonso; David Tuesta; Diego Torres; Begona Villamide
    Abstract: The increase in longevity risk is leading to serious challenges for economies. Industries such as insurance and pensions, which are most closely related to the management of the risks of an aging population, have for a number of years experienced direct effects of this kind. To counterbalance this, they have developed techniques for constructing mortality tables in order to project the future trends of life expectancy at birth and thus reduce the level of uncertainty that this market by its nature involves. Developed countries have led technical improvements for constructing these tables, while Latin American countries have lagged behind significantly in this respect. Given that these countries cannot yet develop tables weighted by social and medical aspects, it is highly probable that this situation will continue. That is why this study aims to construct a forecast for mortality rates, based on projection models of the ARMA (p, q) type and non-parametric contrast methodology. The study is based on the case of Chile, which provides most information for constructing a model for a Latin American country. The estimates show that the official mortality tables in Chile could include significant lags by 2050, which will have major negative effects on the pension and insurance industry, in the hypothetical case that they were not updated. In another exercise, using the mortality table estimated in this work, we found that if pensions in Chile are not to lose their purchasing power, the contribution rate would have to be increased by 8 percentage points in the case of men and 4 in the case of women. Given that Chile is the best developed country in the region with respect to mortality tables, the negative effects on the rest of Latin America could be even more worrisome.
    Keywords: Pensions, insurance, longevity risk, mortality tables, Latin America, Chile
    JEL: G23 J32 G22
    Date: 2013–04
  8. By: Kjetil Storesletten (FRB Minneapolis); Gianluca Violante (NYU); Jonathan Heathcote (Federal Reserve Bank of Minneapolis)
    Abstract: We explore the optimal progressivity of the income tax system in an incomplete-markets model. Agents value private and public consumption and leisure, and are heterogeneous with respect to innate ability, idiosyncratic shock histories, and preferences. This heterogeneity generates a potential role for public insurance. Agents make education and labor supply choices, save in a risk-free bond, and are able to insure a subset of idiosyncratic risks privately. Equilibrium allocations and social welfare are characterized in closed form, which illuminates the various trade-offs in favor of more or less progressive taxation. In a calibration to the United States, we find that the actual US tax and transfer system is more progressive than the one that maximizes social welfare for a utilitarian planner.
    Date: 2012
  9. By: Gina Livermore; Bonnie O'Day; Yonatan Ben-Shalom; Sarah Prenovitz; Jody Schimmel; Craig Thornton
    Abstract: This summary presents key findings from four studies conducted under the Ticket to Work and Self-Sufficiency Program (TTW) evaluation through 2012. The studies focus on the employment efforts of working-age (age 18 to full retirement age) Supplemental Security Income (SSI) and Disability Insurance (DI) beneficiaries and the Social Security work incentives and support designed to encourage and facilitate beneficiary employment. Two of the reports presented in this summary specifically concern TTW program issues, and the other two address more general topics related to beneficiary employment and Social Security work supports other than TTW.
    Keywords: Ticket to Work, Social Security Disability Insurance, Supplemental Security Income, Work Incentives Planning and Assistance (WIPA)
    JEL: I J
    Date: 2012–09–27
  10. By: Gina A. Livermore; Denise Hoffman; Maura Bardos
    Abstract: This report compares the characteristics and outcomes of two cohorts of TTW participants—one whose members assigned their Tickets before the implementation of the revised regulations of 2008, and one whose members assigned their Tickets after. Compared with the pre-regulation-change cohort, the post-regulation-change cohort had a larger share of younger beneficiaries, was more likely to have psychiatric conditions, and was less likely to have ever worked for pay. The service-use patterns of the two cohorts were similar, but the post-regulation-change cohort was less likely to report unmet service needs, more likely to report satisfaction with TTW, and less likely to be employed.
    Keywords: Ticket to Work, Social Security Disability Insurance, Supplemental Security Income, Disability, Employment
    Date: 2012–09–24
  11. By: Calderon, Cesar; Schaeck, Klaus
    Abstract: This paper investigates how government interventions into banking systems such as blanket guarantees, liquidity support, recapitalizations, and nationalizations affect banking competition. This debate is important because the pricing of banking products has implications for borrower and depositor welfare. Exploiting data for 124 countries that witnessed different policy responses to 41 banking crises, and using difference-in-difference estimations, the paper presents the following key results: (i) Government interventions reduce Lerner indices and net interest margins. This effect is robust to a battery of falsification and placebo tests, and the competitive response also cannot be explained by alternative forces. The competition-increasing effect on Lerner indices and net interest margins is also confirmed once the non-random assignment of interventions is accounted for using instrumental variable techniques that exploit exogenous variation in the electoral cycle and in the design of the regulatory architecture across countries. (ii) Consistent with theoretical predictions, the competition-increasing effect of government interventions is greater in more concentrated and less contestable banking sectors, but the effects are mitigated in more transparent banking systems. (iii) The competitive effects are economically substantial, remain in place for at least 5 years, and the interventions also coincide with an increase in zombie banks. The results therefore offer direct evidence of the mechanism by which government interventions contribute to banks'risk-shifting behavior as reported in recent studies on bank level runs via competition. (iv) Government interventions disparately affect bank customers'welfare. While liquidity support, recapitalizations, and nationalizations improve borrower welfare by reducing loan rates, deposit rates decline. The empirical setup allows quantifying these disparate effects.
    Keywords: Banks&Banking Reform,Debt Markets,Access to Finance,Bankruptcy and Resolution of Financial Distress,Deposit Insurance
    Date: 2013–04–01
  12. By: Marsha Gold; Winnie Wang; Gretchen Jacobson
    Abstract: With federal and state governments pursuing efforts to better coordinate care and reduce costs for people dually eligible for both Medicare and Medicaid, this brief examines how insurers serving these markets view the opportunities and challenges. Based on interviews with senior executives at 13 large firms that contract with the Medicare and Medicaid programs, the brief finds almost all of the insurers expect dually eligible beneficiaries will become more important to their business over time.
    Keywords: Medicare, Dual Eligibiles, Health Plans, Health
    JEL: I
    Date: 2013–03–30

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