nep-ias New Economics Papers
on Insurance Economics
Issue of 2013‒07‒20
four papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. The Real Effects of the Uninsured on Premia By Yannelis, Constantine; Sun, Stephen Teng
  2. Universal Insurance and the Prospect Theory By Mwenya, Mwenya
  3. Should Unemployment Insurance Be Asset-Tested? By Koehne, Sebastian; Kuhn, Moritz
  4. Subjective Life Expectancy and Private Pensions By Bucher-Koenen, Tabea; Kluth, Sebastian

  1. By: Yannelis, Constantine; Sun, Stephen Teng
    Abstract: In some insurance markets, the uninsured can generate a negative externality on the insured, leading insurance companies to pass on costs as higher premia. Using a novel panel data set and a staggered policy change that exogenously varied the rate of uninsured drivers at the county level in California, we quantitatively investigate the effect of uninsured motorists on automobile insurance premia. Consistent with predictions of theory, we find uninsured drivers lead to higher insurance premia. Specifically, a 1 percentage point increase in the rate of uninsured drivers raises insurance premia by between 1-2%. We also discuss corrective Pigouvian taxes.
    Keywords: Insurance, externality, uninsured, Pigouvian tax
    JEL: G22 H21 H23 R40
    Date: 2013–05–20
  2. By: Mwenya, Mwenya
    Abstract: In today’s insurance market there is a void that is any one person can have several insurance policies, this entails different providers, different payment schemes etc. There is an opportunity for an insurance company to unite all policies and create a universal insurance (UI) policy, an all in one so to speak. There is an argument that such an policy would be very complex and costly as it would require several specialists to analyse every facets of the purported policy. This need not be the case.
    Keywords: Insurance, Prospect Theory, Banks
    JEL: G22
    Date: 2013–07–07
  3. By: Koehne, Sebastian (IIES, Stockholm University); Kuhn, Moritz (University of Bonn)
    Abstract: We study asset-tested unemployment insurance in an incomplete markets model with moral hazard during job search. Asset testing has two counteracting effects on welfare. On the one hand, it improves consumption insurance by introducing state contingent transfers to agents most in need. On the other hand, it worsens the moral hazard problem, since workers have a reduced incentive to save and fewer private resources are used for consumption smoothing during unemployment. Our results show that in a realistically calibrated model of the U.S. economy the two effects nearly offset each other – the optimal rate of asset-testing is approximately zero. This finding is robust to several alternative specifications of the model, including a case with heterogeneous time-discount factors. We conclude that the current U.S. unemployment insurance system is approximately optimal.
    Keywords: unemployment insurance, asset-testing, incomplete markets, consumption and saving
    JEL: E21 E24 J65
    Date: 2013–07
  4. By: Bucher-Koenen, Tabea; Kluth, Sebastian (Munich Center for the Economics of Aging (MEA))
    Abstract: One important parameter in the decision process when buying a private annuity is individuals' subjective life expectancy, because it directly influences the expected rate of return. We examine the market for private annuities in Germany and evaluate potential selection effects based on subjective life expectancy. First individuals are pessimistic about their life span compared to the official life tables. Second we find a significant selection effect based on subjective life expectancy for women who invest in private annuity contracts - so-called Riester pensions. For men there seems to be no difference in subjective life expectancy by Riester ownership. Comparing the size of this selection effect with the underlying loading in life expectancy charged by the insurance industry shows that the latter appears to be in line for women but very high for men. Our findings have strong policy implications. On the one hand misperceptions about longevity risk might prevent individuals from providing sufficiently for retirement. On the other hand mandated unisex tariffs might especially discourage men from investing in Riester pensions, for them premiums in life expectancy are particularly high compared to subjective expectations.
    JEL: D12 D91 G11
    Date: 2013–05–23

This nep-ias issue is ©2013 by Soumitra K Mallick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.