nep-ias New Economics Papers
on Insurance Economics
Issue of 2013‒11‒02
twelve papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Uncertain altruism and the provision of long term care By CREMER, Helmuth; gahvari, Firouz; PESTIEAU, Pierre
  2. Evaluation and use of indicators of insurance companies’ investment activities By Kozmenko, Olha; Roienko, Victoria
  3. Does Full Insurance Increase the Demand for Health Care? By Boes, Stefan; Gerfin, Michael
  4. Shadow Insurance By Ralph S.J. Koijen; Motohiro Yogo
  5. Maternity Leave and the Responsiveness of Female Labor Supply to a Household Shock By Emma Tominey
  6. The Effects of Retiree Health Insurance Plan Characteristics on Retirees’ Choice and Employers’ Costs By Robert Clark; Melinda Morrill; David Vanderweide
  7. The Role of Retiree Health Insurance in the Early Retirement of Public Sector Employees By John B. Shoven; Sita Slavov
  8. How Family Status and Social Security Claiming Options Shape Optimal Life Cycle Portfolios By Andreas Hubener; Raimond Maurer; Olivia S. Mitchell
  9. Fraud in the Workplace? Evidence from a Dependent Verification Program By Michael Geruso; Harvey S. Rosen
  10. The health care system reform in China: effects on out-of-pocket expenses and saving By Vincenzo Atella; Agar Brugiavini; Noemi Pace
  11. Usage of Financial Services in South Africa: Perceptions Matter By Kostov, Philip; Arun, Thankom; Annim, Samuel Kobina
  12. Institutional Investors and Green Infrastructure Investments: Selected Case Studies By Christopher Kaminker; Osamu Kawanishi; Fiona Stewart; Ben Caldecott; Nicholas Howarth

  1. By: CREMER, Helmuth (Toulouse School of Economics, France); gahvari, Firouz (Department of Economics, University of Illinois, USA); PESTIEAU, Pierre (CREPP, Université de Liège; Université catholique de Louvain, CORE, Belgium; Toulouse School of Economics, France)
    Abstract: This paper studies the role of private and public long term care (LTC) insurance programs in a world in which family assistance is uncertain. Benefits are paid in case of disability but cannot be conditioned (directly), due to moral hazard problems, on family aid. Under a topping up scheme, when the probability of altruism is high, there is no need for insurance. At lower probabilities, insurance is required, thought not full insurance. This can be provided either privately or publicly if insurance premiums are fair, and publicly otherwise. Moreover, the amount of LTC insurance varies negatively with the probability of altruism. With an opting out scheme, there will be three possible equilibria depending on the children’s degree of altruism being “low,” “moderate,” or “very high”. These imply: full LTC insurance with no aid from children, less than full insurance just enough to induce aid, and full insurance with aid. Fair private insurance markets can support the first equilibrium, but not the other two equilibria. Only a public opting-out scheme can attain them by creating incentives for self-targeting and ensuring that only dependent parents who are not helped by their children seek help from the government.
    Keywords: long term care, uncertain altruism, private insurance, public insurance, topping up, opting out
    JEL: H2 H5
    Date: 2013–09–23
  2. By: Kozmenko, Olha; Roienko, Victoria
    Abstract: The paper offers a scientific and methodical approach to the evaluation of investment activities of insurance companies, develops investment strategies based on the correlation of investment characteristics, studies the current level of Ukrainian companies’ investment activities in the area of life insurance and presents recommendations regarding the choice of the proper investment strategies.
    Keywords: insurance company, investment potential, investment risk, efficiency, investment activity.
    JEL: G20 G22
    Date: 2013–10–03
  3. By: Boes, Stefan (University of Lucerne); Gerfin, Michael (University of Bern)
    Abstract: We estimate the causal effect of having full health insurance on health care expenditures. We take advantage of a unique quasi-experimental setup in which deductibles and co-payments were zero in a managed care plan, and non-zero in regular insurance, until a policy change forced all individuals with an active plan to cover a minimum amount of their expenses. Using panel data and a non-linear difference-in-differences strategy, we find a demand elasticity of about -0.14 comparing full insurance with the cost-sharing model, and a significant upward shift in the likelihood to generate costs.
    Keywords: deductibles, health cost, quasi experiment, changes-in-changes
    JEL: I11 C14
    Date: 2013–10
  4. By: Ralph S.J. Koijen; Motohiro Yogo
    Abstract: Liabilities ceded by life insurers to shadow reinsurers (i.e., less regulated off-balance sheet entities) grew from $11 billion in 2002 to $363 billion in 2012. Companies that are involved in shadow insurance, which capture 50 percent of the market share, ceded 28 cents of every dollar insured to shadow reinsurers in 2012, up from 2 cents in 2002. Our adjustment for shadow insurance reduces risk-based capital by 49 percentage points (or 3 rating notches) and raises expected loss by at least $15.7 billion for the industry. We develop a structural model to estimate the impact of shadow insurance on the equilibrium supply in the retail market. In the absence of shadow insurance, marginal cost would rise by 1.8 percent, and annual insurance underwritten would fall by $1.4 billion at unit demand elasticity.
    JEL: G22 G28
    Date: 2013–10
  5. By: Emma Tominey (University of York)
    Abstract: Female labor supply can insure households against shocks to paternal employment. The paper estimates whether the female labor supply response to a paternal employment shock differs by eligibility to maternity employment protection. We exploit time-state variation in the implementation of unpaid maternity leave through the Family and Medical Leave Act (FMLA) in the US which increased employment protection from 0 to 12 weeks. We find that mothers eligible for FMLA speed up their return to work in response to a paternal shock, with a conditional probability of being in work 53% higher than in households with no paternal shock. In contrast, there was a negligible insurance response for mothers with no employment protection.
    Keywords: female labor supply, insurance, maternity leave
    JEL: I30 J13 J20 J64
    Date: 2013–10
  6. By: Robert Clark; Melinda Morrill; David Vanderweide
    Abstract: To moderate the rate of growth of retiree health insurance costs, employers can modify plans and move retirees into less expensive plans. We examine policy modifications implemented by the North Carolina State Health Plan. We investigate whether incentives produce the desired plan elections and whether these changes, along with cost shifting, produce the expected reductions in cost growth. Using individual-level administrative data, along with aggregated data on expenditures for retirees, we estimate the effects of the introduction and subsequent repeal of a Comprehensive Wellness Initiative for non-Medicare eligible retirees, as well as increases in coinsurance and copayments and the introduction of a premium for all retirees. Over a third of non-Medicare retirees shifted into the least generous plan between June 2009 and December 2012. The level effects on annual costs and unfunded accrued liabilities were relatively modest, but growth rates were diminished. Increases in the retiree premiums reduced projected costs.
    JEL: H75 I13 J32
    Date: 2013–10
  7. By: John B. Shoven; Sita Slavov
    Abstract: Most private sector workers with employer-provided health insurance have a strong incentive to continue working until Medicare eligibility in order to maintain group health coverage. However, most government employees have access to retiree health coverage, which allows them access to group health coverage even if they retire before Medicare eligibility. We study the impact of retiree health coverage on the probability of stopping work among public sector workers between the ages of 55 and 64. We find that, for state and local government employees, retiree health coverage raises the probability of stopping work by 5.1 percentage points (around 28 percent) between ages 60 and 64. However, we find no evidence that retiree health coverage influences state and local employees’ decisions to stop work at ages 55-59, or that such coverage has an effect on the probability of stopping work for federal and military employees.
    JEL: I1 J2 J3 J4
    Date: 2013–10
  8. By: Andreas Hubener; Raimond Maurer; Olivia S. Mitchell
    Abstract: Household decisions are profoundly shaped by a complex set of financial options due to Social Security rules determining retirement, spousal, and survivor benefits, along with benefit adjustments that vary with the age at which these are claimed. These rules influence optimal household asset allocation, insurance, and work decisions, given life cycle demographic shocks such as marriage, divorce, and children. Our model generates a wealth profile and a low and stable equity fraction consistent with empirical evidence. We also confirm predictions that wives will claim retirement benefits earlier than husbands, while life insurance is mainly purchased by younger men. Our policy simulations imply that eliminating survivor benefits would sharply reduce claiming differences by sex while dramatically increasing men’s life insurance purchases.
    JEL: D1 D13 G11 H55 J12 J22 J26
    Date: 2013–10
  9. By: Michael Geruso (University of Texas at Austin); Harvey S. Rosen (Princeton University)
    Abstract: In recent years many employers, both in the private and public sectors, have implemented dependent verification (DV) programs, which aim to reduce employee benefits costs by ensuring that ineligible persons are not enrolled in their health plan as dependents. However, little is known about their efficacy. In this paper, we evaluate a DV program using a panel of health plan enrollment data from a large, single-site employer who implemented it several years ago. We find that relative to all other years, dependents were 2.7 percentage points less likely to be reenrolled in the year that DV was introduced, indicating that this fraction of dependents was ineligibly enrolled prior to the program’s introduction. These disenrollment effects were especially large for same-sex partners and older children. We show that the program did not induce employees to leave the employer’s plan and (say) put themselves and their dependents on the spouse’s plan. We also show that disenrollment occurred because dependents were actually ineligible, not because of compliance costs that might be associated with providing documentation. The DV program saved about $46 per enrolled employee. A considerable fraction of these cost savings came from removing older children who didn’t meet additional criteria. Therefore, the dependent coverage provision of the Affordable Care Act of 2010, which essentially renders all children up to age 26 eligible in all employer health plans, will substantially limit the future cost saving potential of such programs. Hence, as the state governments and private employers that have implemented DV programs adapt to the new regulatory environment, the popularity of dependent verification programs may well diminish.
    Keywords: health insurance, dependents, benefits, costs, verification, health care
    JEL: D19 H31 I11 I00 J32
    Date: 2013–04
  10. By: Vincenzo Atella (University of Rome Tor Vergata and CHP-PCOR Stanford University); Agar Brugiavini (Universy Ca' Foscari of Venice and Venice International University); Noemi Pace (xUniversy Ca' Foscari of Venice, and CEIS Tor Vergata)
    Abstract: This paper aims at evaluating the impact of 1998 Chinese health care reform on out-of-pocket expenditure and on saving. Existing evidence on the results achieved by this reform in terms of reduction of out-of-pocket medical expenditures is still mixed and contradictory, and very little is known about the impact of these measures on the consumption and saving behavior of the Chinese population. To shed more light on this issue we use data collected by the Chinese Household Income Project (CHIP), through a series of questionnaire-based interviews conducted in urban areas in 1995 and 2002. Contrary to previous evidence, our ndings suggest that, once properly accounting for unobserved heterogeneity (health status), out-of-pocket medical expenses and saving rate are affected by the reform in a differentiated way. In particular, we find that out-of-pocket expenses increase more for individuals with poor health status and the saving rate increases only for individual with good health status.
    Keywords: China, Health Insurance, Health care system reform, Household Saving, Out-of-pocket expenditures.
    JEL: D14 I13 P36
    Date: 2013–10–22
  11. By: Kostov, Philip (University of Central Lancashire); Arun, Thankom (University of Central Lancashire); Annim, Samuel Kobina (University of Central Lancashire)
    Abstract: This study investigates the access to and usage of financial services in South Africa. Financial services are categorised in three types namely; general accounts and services, investment/savings and insurance/assurance. Taking into account the interactions between usage of different types of financial services, we use multivariate simultaneous probit specification to examine the effect of financial perception. Our results suggests that after controlling for endogeneity of choices and a range of control variables, financial perceptions are robust determinant of access to financial services. The impact of financial perception however reduces and gradually disappears as one moves up the financial access ladder towards more advanced financial products and services. In a policy context, targeting demand-side factors to increase access to and use of financial services is advisable. This targeting however can only be successful if it is tuned to specific basic financial services and products.
    Keywords: financial, perception, behaviour, general accounts, investment, insurance, South Africa
    JEL: O16 N27 R20
    Date: 2013–10
  12. By: Christopher Kaminker; Osamu Kawanishi; Fiona Stewart; Ben Caldecott; Nicholas Howarth
    Abstract: This report is structured in three chapters. The first chapter examines the channels through which institutional investors can access green infrastructure, assesses the extent to which this is currently happening, and identifies the barriers to scaling up these investment flows. The second chapter presents four case studies: on utility-scale solar PV power generation in the United States, sustainable agriculture in Brazil, off-shore wind energy in the United Kingdom, and the securitisation of on-shore wind farms in Germany and France. The third chapter uses the conclusions on the case studies to draw out broader lessons for governments on the policy settings which may support investment in green infrastructure by institutional investors. These include, inter alia, ensuring a stable and integrated policy environment, addressing market failures, providing an infrastructure road map, facilitating the development of appropriate green financing vehicles, and promoting market transparency and improved data collection. L'investissement institutionnel dans les infrastructures vertes : Études de cas Le présent rapport est divisé en trois chapitres. Le premier étudie les possibilités offertes aux investisseurs institutionnels pour financer des infrastructures vertes, l’étendue de l’expérience acquise à ce jour ainsi que les obstacles à la multiplication de ce type d’investissements. Le deuxième chapitre présente quatre études de cas relatives à la production centralisée d’électricité photovoltaïque aux États-Unis, l’agriculture durable au Brésil, l’énergie éolienne off-shore au Royaume-Uni et les centrales éoliennes terrestres en Allemagne et en France. De ces études de cas, le troisième chapitre tire des conclusions générales concernant la conception de politiques favorisant l’investissement institutionnel dans les infrastructures vertes. Il préconise notamment de créer un cadre d’action stable et harmonieux, d’éliminer les défaillances du marché, d’établir une feuille de route de la construction d’infrastructures, d’encourager la mise au point de mécanismes appropriés de financement verts et, enfin, d’améliorer la transparence des marchés et la collecte des données.
    Keywords: infrastructure, insurance companies, pension funds, green bonds, green growth, obligations vertes, fonds de pension, infrastructure, croissance verte
    JEL: G15 G18 G23 G28 J26
    Date: 2013–10–23

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