nep-ias New Economics Papers
on Insurance Economics
Issue of 2013‒12‒29
six papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Natural Disters : Exposure and Underinsurance By Céline Grislain-Letremy
  2. Who opts out of the statutory health insurance? A discrete time hazard model for Germany By Bünnings, Christian; Tauchmann, Harald
  3. Hidden Insurance in a Moral Hazard Economy By Bertola, Giuseppe; Koeniger, Winfried
  4. Risk, Insurance and Wages in General Equilibrium By Mark Rosenzweig; Ahmed Musfiq Mobarak
  5. Monopoly Insurance with Endogenous Information By Rupert Sausgruber; Christoph Schotmüller
  6. Employer Contribution and Premium Growth in Health Insurance By Yiyan Liu; Ginger Zhe Jin

  1. By: Céline Grislain-Letremy (INSEE-CREST)
    Abstract: Insurance coverage for natural disasters remains low in many exposed areas. A limited supply of insurance is commonly identified as a primary causal factor in this low insurance coverage. The French overseas departments provide a rare natural experiment of a well-developed supply of natural disasters insurance in highly exposed regions. The French system of natural disasters insurance is underwritten and regulated by the French government; instituted initially for metropolitan France only, it was extended to overseas departments in the state of emergency following Hurricane Hugo in 1989. This natural experiment makes it possible to analyze the determinants of insurance coverage on the demand side. Based on unique household-level microdata, I estimate an insurance market model which had not yet been empirically tested. Using this structural approach, I show that underinsurance in the French overseas departments is neither due to perception biases nor to unaffordable insurance, but mainly to uninsurable housing and to the anticipation of assistance, which crowds out insurance. Individual insurance decisions are influenced by neighbors’ insurance choices through peer effects and neighborhood eligibility for assistance
    Keywords: Natural Disters, Insurant, Disaster aid, Public assistance
    JEL: Q54 G22 H84 D12
    Date: 2013–10
  2. By: Bünnings, Christian; Tauchmann, Harald
    Abstract: The coexistence of social health insurance and private health insurance in Germany is subject to intense public debate. As only few have the opportunity to choose between the two systems, they are often regarded as privileged by the health insurance system. Applying a hazard model in discrete time, this paper examines the role of incentives set by the regulatory framework as well as the influence of individual personality characteristics on the decision to opt out of the statutory system. To address potential endogeneity of one of the key explanatory variables an instrumental variable approach is also applied. The estimation results yield robust evidence on the choice of health insurance type that is consistent with rational decision making, with both incentives set by regulation and personality traits as relevant determinants. --
    Keywords: statutory and private health insurance,incentives,personality traits
    JEL: C13 C23 I13
    Date: 2013
  3. By: Bertola, Giuseppe (EDHEC Business School); Koeniger, Winfried (University of St. Gallen)
    Abstract: We consider an economy where individuals privately choose effort and trade competitively priced securities that pay off with effort-determined probability. We show that if insurance against a negative shock is sufficiently incomplete, then standard functional form restrictions ensure that individual objective functions are optimized by an effort and insurance combination that is unique and satisfies first- and second-order conditions. Modeling insurance incompleteness in terms of costly production of private insurance services, we characterize the constrained inefficiency arising in general equilibrium from competitive pricing of nonexclusive financial contracts.
    Keywords: hidden action, principal agent, first-order approach, constrained efficiency
    JEL: E21 D81 D82
    Date: 2013–12
  4. By: Mark Rosenzweig (Economic Growth Center, Yale University); Ahmed Musfiq Mobarak (Economic Growth Center, Yale University)
    Abstract: We estimate the general-equilibrium labor market effects of a large-scale randomized intervention in which we designed and marketed a rainfall index insurance product across three states in India. Marketing agricultural insurance to both cultivators and to agricultural wage laborers allows us to test a general-equilibrium model of wage determination in settings where households supplying labor and households hiring labor face weather risk. Consistent with theoretical predictions, we find that both labor demand and equilibrium wages become more rainfall sensitive when cultivators are offered rainfall insurance, because insurance induces cultivators to switch to riskier, higher-yield production methods. The same insurance contract offered to agricultural laborers smoothes wages across rainfall states by inducing changes in labor supply. Policy simulations based on our estimates suggest that selling insurance only to land-owning cultivators and precluding the landless from the insurance market (which is the current regulatory practice in India and other developing countries), makes wage laborers worse off relative to a situation where insurance does not exist at all. The general-equilibrium analysis reveals that the welfare costs of curren regulation are borne by landless laborers, who represent the poorest segment of society and whose risk management options are the most limited.
    Keywords: Index insurance, Agricultural Wages, General Equilibrium Effects
    JEL: O17 O13 O16
    Date: 2013–12
  5. By: Rupert Sausgruber (Department of Economics, Copenhagen University); Christoph Schotmüller (Department of Economics, Tilburg University)
    Abstract: We study a monopoly insurance model with endogenous information acquisition. Through a continuous effort choice, consumers can determine the precision of a privately observed signal that is informative about their accident risk. The equilibrium effort is, depending on parameter values, either zero (implying symmetric information) or positive (implying privately informed consumers). Regardless of the nature of the equilibrium, all offered contracts, also at the top, involve underinsurance. The reason is that underinsurance at the top discourages information gathering. We identify a sorting effect that explains why the insurer wants to discourage information acquisition. Moreover, a public policy that decreases the information gathering costs can hurt both parties. Lower information gathering costs can harm consumers because the insurer adjusts the optimal contract menu in an unfavorable manner.
    Keywords: asymmetric information, information acquisition, insurance, screening, adverse selection
    JEL: D82 I13
    Date: 2013–11–26
  6. By: Yiyan Liu; Ginger Zhe Jin
    Abstract: We study whether employer premium contribution schemes could impact the pricing behavior of health plans and contribute to rising premiums. Using 1991-2011 data before and after a 1999 premium subsidy policy change in the Federal Employees Health Benefits Program (FEHBP), we find that the employer premium contribution scheme has a differential impact on health plan pricing based on two market incentives: 1) consumers are less price sensitive when they only need to pay part of the premium increase, and 2) each health plan has an incentive to increase the employer's premium contribution to that plan. Both incentives are found to contribute to premium growth. Counterfactual simulation shows that average premium would have been 10% less than observed and the federal government would have saved 15% per year on its premium contribution had the subsidy policy change not occurred in the FEHBP.
    JEL: H2 I1 L1
    Date: 2013–12

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