nep-ias New Economics Papers
on Insurance Economics
Issue of 2014‒02‒21
ten papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Explicit Solutions of Optimal Consumption, Investment and Insurance Problem with Regime Switching By Bin Zou; Abel Cadenillas
  2. Managing multichannel strategies in the service sector- the example of the French insurance industry By Ilaria Dalla Pozza; Lionel Texier
  3. Regulatory Redistribution in the Market for Health Insurance By Jeffrey Clemens
  4. Cyclicity in the French PropertyLiability Insurance Industry - New Findings over the Recent Period By Catherine Bruneau; Nadia Sghaier
  5. Multivariate risk sharing and the derivation of individually rational Pareto optima By Alain Chateauneuf; Mina Mostoufi; David Vyncke
  6. Financing Unemployment Insurance By Wayne Vroman; Stephen Woodbury
  7. Immigrant Networks and the Take-Up of Disability Programs: Evidence from US Census Data By Delia Furtado; Nikolaos Theodoropoulos
  8. Disparities in taking sick leave between sectors of activity in France: a longitudinal analysis of administrative data By Thomas Barnay; Sandrine Juin; Renaud Legal
  9. Labor income dynamics and the insurance from taxes, transfers and the family By Richard Blundell; Michael Graber; Magne Mogstad
  10. Linear Prices Equilibria and Nonexclusive Insurance Market By Frédéric Loss; Gwenaël Piaser

  1. By: Bin Zou; Abel Cadenillas
    Abstract: We generalize Merton's framework by incorporating an insurable loss. Motivated by new insurance products, we allow not only the financial market but also the insurable loss to depend on the regime of the economy. An investor wants to select an optimal consumption, investment, and insurance policy that maximizes his expected total discounted utility of consumption over an infinite time horizon. For the case of hyperbolic absolute risk aversion (HARA) utility functions, we obtain the first explicit solutions for optimal consumption, investment, and insurance problem when there is regime switching. We determine that the optimal insurance contract is either no-insurance or deductible insurance, and calculate when it is optimal to buy insurance. The optimal policy depends strongly on the regime of the economy. Through an economic analysis, we calculate the advantage of buying insurance. We also observe that as long as optimal insurance is nonzero in one regime, investors gain benefits in all regimes from insurance.
    Date: 2014–02
  2. By: Ilaria Dalla Pozza; Lionel Texier
    Abstract: The goal of this paper is to investigate the implementation of multichannel strategies in the service sector and to understand objectives, difficulties faced by companies, synergies and competitive effects among channels, and future areas of investment. We answer our research questions using in depth interviews with a sample of insurance directors responsible for the multichannel strategy of the major French insurance players.
    Keywords: Global financial crisis, contagion, emerging equity markets, sovereign risk.
    Date: 2014–01–06
  3. By: Jeffrey Clemens
    Abstract: In the early 1990s, several U.S. states enacted community rating regulations to equalize the health insurance premiums paid by the healthy and the sick. Consistent with severe adverse selection pressures, their private coverage rates fell by around 8 percentage points more than rates in comparable markets over subsequent years. By the early 2000s, following substantial public insurance expansions, coverage rates in several of these states had improved significantly. As theory predicts, recoveries were largest where public coverage expanded disproportionately for high cost populations. The analysis highlights that the incidence of public insurance and community rating regulations are tightly intertwined.
    JEL: H51 H53 I13 I18
    Date: 2014–02
  4. By: Catherine Bruneau; Nadia Sghaier
    Abstract: This paper reinvestigates the presence and the causes of the underwriting cycle in the French property-liability insurance industry as displayed by the combined ratio for the 1963-2008 period. The question is still a timely issue if we refer to regulation issues and the recent proposals in the Sovency framework to take into account the fluctuations of the profitability in specifying the solvency capital requirement. In the literature, two approaches are traditionally adopted to investigate the underwriting cycle : the first one refers to an endogeneous characterization of the cyclical properties from an AR(2) model. The second one claims that the cycle in the property-liability insurance has exogeneous sources related to the financial markets and the general economy. In this article, we reconcile the two approaches by using a smooth transition regression (STR) model. This model shows that the AR(2) model is relevant in a first regime where the capacity constraint is binding. In contrast, the fluctuations in the combined ratio are positively influenced by the lagged stock market return in a second regime where the capacity is not constrained, as for the most recent period. Moreover, we find that the current capacity is related to the lagged inflation rate in the latter case. These results confirm the idea that the European rules regarding the solvency capital requirement for insurance companies should take into account the state of the economy and the financial markets.
    Keywords: underwriting cycle, property-liability insurance, combined ratio, AR(2) model,financial markets, general economy, STR model, capacity constraint, solvency.
    Date: 2014–01–06
  5. By: Alain Chateauneuf (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris 1 - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, IPAG Business School - Business School); Mina Mostoufi (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris 1 - Panthéon-Sorbonne); David Vyncke (Universiteit Gent - Vakgroep Toegepaste Wiskunde en Informatica)
    Abstract: Considering that a natural way of sharing risks in insurance companies is to require risk by risk Pareto optimality, we offer in case of strong risk aversion, a simple computable method for deriving all Pareto optima. More importantly all Individually Rational Pareto optima can be computed according to our method.
    Keywords: Multivariate risk sharing; comonotonicity; individually rational Pareto optima
    Date: 2014–01
  6. By: Wayne Vroman (Urban Institute); Stephen Woodbury (Michigan State University; W.E. Upjohn Institute for Employment Research)
    Abstract: Following the Great Recession, most states' unemployment insurance (UI) trust funds became insolvent, requiring the states to borrow from the U.S. Treasury to finance benefit payments. This article describes the basics of UI financing and reviews the origins of the financial crisis facing the federal-state UI system. It then examines the main components of the UI payroll tax—the taxable wage base and the experience-rated payroll tax—and considers how these might be modified to avoid future widespread insolvency. We conclude with some speculative remarks on the future of UI financing.
    Keywords: unemployment insurance, trust fund insolvency, payroll tax
    JEL: H2 J65
    Date: 2014–02
  7. By: Delia Furtado (University of Connecticut); Nikolaos Theodoropoulos (University of Cyprus)
    Abstract: This paper examines the role of ethnic networks in disability program take-up among workingage immigrants in the United States. We find that even when controlling for country of origin and area of residence fixed effects, immigrants residing amidst a large number of co-ethnics are more likely to receive disability payments when their ethnic groups have higher take-up rates. Although this pattern can be partially explained by cross-group differences in satisfying the work history or income and asset requirements of the disability programs, we also present evidence suggesting that social norms play an important role.
    Keywords: Social Security Disability Insurance, Supplementary Security Income, Networks, Social norms, Immigrants
    JEL: C31 H55 I18 J61
    Date: 2014–01
  8. By: Thomas Barnay (TEPP - Travail, Emploi et Politiques Publiques - CNRS : FR3435 - Université Paris-Est Marne-la-Vallée (UPEMLV), ERUDITE - Equipe de Recherche sur l'Utilisation des Données Individuelles Temporelles en Economie - Université Paris-Est Créteil Val-de-Marne (UPEC) : EA437 - Université Paris-Est Marne-la-Vallée (UPEMLV)); Sandrine Juin (TEPP - Travail, Emploi et Politiques Publiques - CNRS : FR3435 - Université Paris-Est Marne-la-Vallée (UPEMLV), ERUDITE - Equipe de Recherche sur l'Utilisation des Données Individuelles Temporelles en Economie - Université Paris-Est Créteil Val-de-Marne (UPEC) : EA437 - Université Paris-Est Marne-la-Vallée (UPEMLV), INED - Institut National d'Etudes Démographiques Paris - INED); Renaud Legal (DREES - Centre de Recherche du DREES - Ministère de l'Emploi et de la Solidarité)
    Abstract: The main objective of this study is to analyse the effect of the professional environment on sick leaves. The professional context is approximated by the sector of activity. The database used - Hygie (2005-2008) - allows taking individual heterogeneity into account thanks to the longitudinal dimension. Sick leave probability is estimated through a fixed effects logit model and the duration (number of days absent due to sickness) is estimated through a fixed effects Poisson model. The results show that sectors of activity differ in sick leave duration rather than in the occurrence. Indeed, taking into account individual heterogeneity and differences in health status and wages reduces the variability in sick leave probability between sectors by half. On the other hand, the sector remains decisive in explaining sick leave durations. This residual variability may refer to unobserved differences in working conditions, in the generosity of daily sick pay benefits or in job insecurity.
    Keywords: sick leaves; health insurance; government policy; longitudinal data; fixed-effects; conditional maximum likelihood
    Date: 2014
  9. By: Richard Blundell (Institute for Fiscal Studies and University College London); Michael Graber (Institute for Fiscal Studies); Magne Mogstad (Institute for Fiscal Studies)
    Abstract: What do labor income dynamics look like over the life-cycle? What is the relative importance of persistent shocks, transitory shocks and heterogeneous profiles? To what extent do taxes, transfers and the family attenuate these various factors in the evolution of life-cycle inequality? In this paper, we use rich Norwegian data to answer these important questions. We let individuals with different education levels have a separate income process; and within each skill group, we allow for non-stationarity in age and time, heterogeneous experience profiles, and shocks of varying persistence. We find that the income processes differ systematically by age, skill level and their interaction. To accurately describe labor income dynamics over the life-cycle, it is necessary to allow for heterogeneity by education levels and account for non-stationarity in age and time. Our findings suggest that the progressive nature of the Norwegian tax-transfer system plays a key role in attenuating the magnitude and persistence of income shocks, especially among the low skilled. By comparison, spouse's income matters less for the dynamics of inequality over the life-cycle.
    Date: 2014–01
  10. By: Frédéric Loss; Gwenaël Piaser
    Abstract: Family businesses are an important part of the world economy (Anderson and Reeb, 2003) and show significant differences in their corporate governance compared to non-family firms. Although displaying evident unique features, family firms have received relatively little attention as distinct from their equivalents in publicly held firms. Our study contributes to this growing research and investigates empirically the relationship between family shareholding and audit pricing. Using a sample of 3291 firm-year observations of major U.S. listed companies, for the period 2006- 2008, our results demonstrate that audit fees is negatively associated to family shareholding after taking into account unobservable firm effects, time-varying, industry effects and traditional control variables. The empirical results are robust to alternative family shareholding measures and estimation model specifications. Our results are consistent with the convergence-of-interests hypothesis suggesting that family firms face lower manager/shareholders agency costs. Auditors charge lower fees for family firms because of lower information asymmetry and risk as the controlling family is well informed about the firm and is better able to monitor managerial decisions.
    Keywords: Family firms, Audit Fees, Agency Conflicts, Corporate Governance
    Date: 2014–01–01

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