nep-ias New Economics Papers
on Insurance Economics
Issue of 2014‒03‒22
nine papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Critical illness insurance in life cycle portfolio problems By Schendel, Lorenz S.
  2. Life insurance demand under health shock risk By Kraft, Holger; Schendel, Lorenz S.; Steffensen, Mogens
  3. Consumption-investment problems with stochastic mortality risk By Schendel, Lorenz S.
  4. The Share of Nonprofit and For-profit Organizations in the Quasi-market: An Analysis of the Long-term Care Services Market in Japan By Junyi Shen; Nobuko Kanaya; Hiromasa Takahashi
  5. An importance sampling algorithm for copula models in insurance By Philipp Arbenz; Mathieu Cambou; Marius Hofert
  6. "Can Formal Elderly Care Stimulate Female Labor Supply? The Japanese Experience" By Shinya Sugawara; Jiro Nakamura
  7. Livestock Gross Margin-Dairy Insurance: An Assessment of Risk Management and Potential Supply Impacts By Mosheim, Roberto; Blaney, Don; Burdine, Kenny; Maynard, Leigh
  8. Scraping by: Income and program participation after the loss of extended unemployment benefits By Rothstein, Jesse; Valletta, Robert G.
  9. Inpatient Hospital Prices Drive Spending Variation for Episodes of Care for Privately Insured Patients. By Chapin White; James D. Reschovsky; Amelia M. Bond

  1. By: Schendel, Lorenz S.
    Abstract: I analyze a critical illness insurance in a consumption-investment model over the life cycle. I solve a model with stochastic mortality risk and health shock risk numerically. These shocks are interpreted as critical illness and can negatively affect the expected remaining lifetime, the health expenses, and the income. In order to hedge the health expense effect of a shock, the agent has the possibility to contract a critical illness insurance. My results highlight that the critical illness insurance is strongly desired by the agents. With an insurance profit of 20%, nearly all agents contract the insurance in the working stage of the life cycle and more than 50% of the agents contract the insurance during retirement. With an insurance profit of 200%, still nearly all working agents contract the insurance, whereas there is little demand in the retirement stage. --
    Keywords: Health shocks,Health expenses,Labor income risk,Stochastic mortality risk,Portfolio choice
    JEL: D91 G11 I13
    Date: 2014
  2. By: Kraft, Holger; Schendel, Lorenz S.; Steffensen, Mogens
    Abstract: This paper studies the life cycle consumption-investment-insurance problem of a family. The wage earner faces the risk of a health shock that significantly increases his probability of dying. The family can buy term life insurance with realistic features. In particular, the available contracts are long term so that decisions are sticky and can only be revised at significant costs. Furthermore, a revision is only possible as long as the insured person is healthy. A second important and realistic feature of our model is that the labor income of the wage earner is unspanned. We document that the combination of unspanned labor income and the stickiness of insurance decisions reduces the insurance demand significantly. This is because an income shock induces the need to reduce the insurance coverage, since premia become less affordable. Since such a reduction is costly and families anticipate these potential costs, they buy less protection at all ages. In particular, young families stay away from life insurance markets altogether. --
    Keywords: Health shocks,Portfolio choice,Term life insurance,Mortality risk,Labor income risk
    JEL: D14 D91 G11 G22
    Date: 2014
  3. By: Schendel, Lorenz S.
    Abstract: I numerically solve realistically calibrated life cycle consumption-investment problems in continuous time featuring stochastic mortality risk driven by jumps, unspanned labor income as well as short-sale and liquidity constraints and a simple insurance. I compare models with deterministic and stochastic hazard rate of death to a model without mortality risk. Mortality risk has only minor effects on the optimal controls early in the life cycle but it becomes crucial in later years. A diffusive component in the hazard rate of death has no significant impact, whereas a jump component is desired by the agent and influences optimal controls and wealth evolution. The insurance is used to ensure optimal bequest such that there is no accidental bequest. In the absence of the insurance, the biggest part of bequest is accidental. --
    Keywords: Stochastic mortality risk,Health jumps,Labor income risk,Portfolio choice,Insurance
    JEL: D91 G11
    Date: 2014
  4. By: Junyi Shen (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan); Nobuko Kanaya (Hiroshima City University, Hiroshima, Japan); Hiromasa Takahashi (Hiroshima City University, Hiroshima, Japan)
    Abstract: This paper aims to examine the factors which affect the market shares of several nonprofit and for-profit providers in the long-term care insurance system. We focus on the impact of market size and growth, demand heterogeneity and philanthropic activities, using a prefectural panel data set. The results indicate, though not in all cases, that the market shares of 1) the market shares of nonprofit organizations are relatively larger in the areas with more unprofitable market conditions, 2) the market shares of citizen-driven nonprofit organizations are larger in the areas with more heterogeneous demand and 3) the market shares of citizen-driven nonprofit organizations are larger in the areas with more active civic voluntarism.
    Keywords: quasi market, long-term care insurance system, nonprofit organization(NPO), market competition, elderly care, voluntarism, panel analysis.
    Date: 2014–03
  5. By: Philipp Arbenz; Mathieu Cambou; Marius Hofert
    Abstract: An importance sampling algorithm for copula models is introduced. The method improves Monte Carlo estimators when the functional of interest depends mainly on the behaviour of the underlying random vector when at least one of the components is large. Such problems often arise from dependence models in finance and insurance. The importance sampling framework we propose is general and can be easily implemented for all classes of copula models from which sampling is feasible. We show how the proposal distribution can be optimized to reduce the sampling error. In a case study inspired by a typical multivariate insurance application, we obtain variance reduction factors between 10 and 20 in comparison to standard Monte Carlo estimators.
    Date: 2014–03
  6. By: Shinya Sugawara (Faculty of Economics, the University of Tokyo); Jiro Nakamura (Faculty of Economics, Nihon University)
    Abstract:    This study analyzes the impacts of the Japanese Long-Term Care Insurance (LTCI), a decade after its launch, with respect to the female labor supply in Japan. The radical program has caused the emergence of markets for various care services apart from permanent institutional care, which is only a major formal care sector in many developed countries. The availability of various formal care services can stimulate female labor supply through a reduction of the burden of informal caregiving. To investigate the impacts of the LTCI, we compare the labor market behavior of females who face requirements for elderly care in their household for three periods before the launch of the LTCI, four years after the launch, and ten years after the launch. Our empirical analysis indicates positive effects of the launch and diffusion of the LTCI on female labor supply. As a result of the LTCI, care for male elders is no longer an obstacle for female labor supply, but care for female elders is still burdensome. We also find that the care requirement reduces the probability of being a regular worker; however, regular workers are more likely to utilize formal care, whereas many nonregular workers provide informal care by themselves.
    Date: 2014–03
  7. By: Mosheim, Roberto; Blaney, Don; Burdine, Kenny; Maynard, Leigh
    Abstract: Public risk management policies for dairy producers have the potential to induce expansion in milk supplies, which might lower farm-level prices and offset risk-reduction benefits. An evaluation of USDA’s Livestock Gross Margin-Dairy (LGM-Dairy) insurance program finds economic downside risk significantly reduced, with potential to induce modest supply expansion (0 to 3 percent) if widely adopted. Supply impacts are likely limited due to relatively low participation levels and a minimal (“inelastic”) supply response to risk. LGM-Dairy is more flexible and convenient than other risk management tools, such as hedging directly in futures or options markets, especially for small farms.
    Keywords: dairy, gross margins, risk management, LGM-Dairy, insurance, milk supplies, livestock, Agricultural and Food Policy, Livestock Production/Industries,
    Date: 2014–03
  8. By: Rothstein, Jesse (University of California, Berkeley); Valletta, Robert G. (Federal Reserve Bank of San Francisco)
    Abstract: Despite unprecedented extensions of available unemployment insurance (UI) benefits during the “Great Recession” of 2007-09 and its aftermath, large numbers of recipients exhausted their maximum available UI benefits prior to finding new jobs. Using SIPP panel data and an event-study regression framework, we examine the household income patterns of individuals whose jobless spells outlast their UI benefits, comparing the periods following the 2001 and 2007-09 recessions. Job loss reduces household income roughly by half on average, and for UI recipients benefits replace just under half of this loss. Accordingly, when benefits end the household loses UI income equal to roughly one-quarter of total pre-separation household income (and about one-third of pre-exhaustion household income). Only a small portion of this loss is offset by increased income from food stamps and other safety net programs. The share of families with income below the poverty line nearly doubles. These patterns were generally similar following the 2001 and 2007-09 recessions and do not vary dramatically by household age or income prior to job loss.
    Date: 2014–01
  9. By: Chapin White; James D. Reschovsky; Amelia M. Bond
    Keywords: Inpatient Hospital Prices, Spending Variation, Privately Insured Patients, NIHCR
    JEL: I
    Date: 2014–02–28

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