nep-ias New Economics Papers
on Insurance Economics
Issue of 2014‒10‒22
fourteen papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. How Would Farm Managers Respond to a Limit on Crop Insurance Premium Subsidies? By Davis, Todd D.; Anderson, John A.; Young, Robert E. III
  2. Japanese Life Insurance Companies' Balance-Sheet Structure and Japanese Government Bond Investment By Kazutoshi Kan; Yoshiyuki Kurachi; Yoshiyuki Fukuda; Shinichi Nishioka
  3. Optimal Life Cycle Unemployment Insurance By Claudio Michelacci; Hernan Ruffo
  4. Comparison of County ARC and SCO By Gerlt, Scott; Westhoff, Patrick
  5. Health Care in Sri Lanka : What Can the Private Health Sector Offer? By Ramesh Govindaraj; Kumari Navaratne; Eleonora Cavagnero; Shreelata Rao Seshadri
  6. Performance of the French insurance sector in 2012. By Bernard R.; Koubi E.; La Motte L.; Rose M.; Mercier L.
  7. Implications of Rice Variety Selection to Optimize Returns from Crop Insurance By Branscum, D. Ethan; Nalley, Lawton L.; Dixon, Bruce L.; Siebenmorgen, Terry J.; Tack, Jesse; Danforth, Diana M.
  8. Paychecks or Promises? Lessons from the Death Spiral of Detroit By Ohanian, Lee E.; Holmes, Thomas J.
  9. Can PBGC Save Multiemployer Plans? The brief’s key findings are: * Participants in multiemployer pension plans have their benefits insured by the Pension Benefit Guaranty Corporation (PBGC). * However, the PBGC’s guaranteed benefit levels are very low compared to single employer plans. * Of greater concern, the PBGC’s insurance fund for multiemployer plans is projected to be exhausted within the next 10 years. * One idea is to head off plan insolvencies through “partitions” that transfer some costs to the PBGC, but little support exists for hiking premiums to cover the costs. * The bottom line is that the PBGC, as currently structured, will not be able to stave off plan insolvencies or fully protect workers in plans that become insolvent. By Alicia H. Munnell; Jean-Pierre Aubry
  10. Microcredit as insurance: Evidence from Indian Self-Help Groups By Timothée Demont
  11. Social Security in an Analytically Tractable Overlapping Generations Model with Aggregate and Idiosyncratic Risk By Daniel Harenberg; Alexander Ludwig
  12. Effects of an Integrated Care System on Children with Special Health Care Needs' Medicaid Expenditures By Marcu, Mircea; Knapp, Caprice; Madden, Vanessa; Brown, David; Wang, Hua; Sloyer, Phyllis
  13. Impacto del Plan Nacer sobre la Mortalidad Infantil en Argentina By Santiago Garriga
  14. Enquête sur les taux de revalorisation des contrats individuels d’assurance vie au titre de 2011 et 2012. By Gandolphe S.; Frey L.; Bahuaud B.

  1. By: Davis, Todd D.; Anderson, John A.; Young, Robert E. III
    Abstract: A stochastic simulation model is used to determine crop insurance premiums and farm program payments for a Illinois corn-soybean and Mississippi corn-soybean-rice-cotton farm. The optimal portfolio of crop insurance and farm programs are determined subject to payment limitations and crop insurance subsidy constraints.
    Keywords: farm management, risk management, farm policy, Agricultural and Food Policy, Farm Management, Risk and Uncertainty,
    Date: 2014
  2. By: Kazutoshi Kan (Bank of Japan); Yoshiyuki Kurachi (Bank of Japan); Yoshiyuki Fukuda (Bank of Japan); Shinichi Nishioka (Bank of Japan)
    Abstract: Japanese life insurance companies hold a large amount of Japanese government bonds (JGBs) as long-term investments. Recently, their holdings of super-long-term JGBs have been increasing especially significantly, and the presence of life insurance companies in the super-long-term JGB market has grown. At life insurance companies, future insurance payment accounts for a large part of liabilities, and thus the period until they make insurance payment (the maturity of liabilities) is long. The period of investment for asset management (the maturity of assets) is long accordingly to anticipate insurance payment. The maturity of liabilities has lengthened moderately as a whole and has remained longer than that of assets. The need to resolve such duration mismatch by lengthening the maturity of assets is one factor behind life insurance companies' active investment in super-long-term JGBs. However, future demographic changes may shorten the maturity of liabilities, and therefore demand for super-long-term JGBs from life insurance companies is likely to change accordingly.
    Date: 2013–02–01
  3. By: Claudio Michelacci (EIEF and CEPR); Hernan Ruffo (UTDT)
    Abstract: We argue that US welfare would rise if unemployment insurance were increased for younger and decreased for older workers. This is because the young tend to lack the means to smooth consumption during unemployment and want jobs to accumulate high-return human capital. So unemployment insurance is most valuable to them, while moral hazard is mild. By calibrating a life cycle model with unemployment risk and endogenous search effort, we find that allowing unemployment replacement rates to decline with age yields sizeable welfare gains to US workers.
    Date: 2014
  4. By: Gerlt, Scott; Westhoff, Patrick
    Keywords: Farm Policy, Crop Insurance, Agricultural and Food Policy, Risk and Uncertainty, Q180,
  5. By: Ramesh Govindaraj; Kumari Navaratne; Eleonora Cavagnero; Shreelata Rao Seshadri
    Abstract: This review represents an attempt to bridge the significant knowledge gaps on the private health sector in Sri Lanka, and foster a dialogue on opportunities for collaboration between the government and the private sector. It accomplishes this through a systematic collection and analysis of primary and secondary data on the provision, financing, and regulation of health care services. On health service delivery, the review finds that the private sector: includes a range of providers; focuses primarily on curative and outpatient services rather than preventive services; is heavily dependent on the public sector for its supply of human resources; and is concentrated in urban areas. The quality of health care services in Sri Lanka in both the private and public sectors, while better than in most developing countries, still lags behind those in more advanced countries. There is also little systematic dialogue and collaboration between the public and private sectors. On financing, the review finds that private health expenditure is more than half of total health expenditure, mostly in the form of out-of-pocket payments by households, with clear implications for Sri Lanka's progression toward universal health coverage. On stewardship and regulation, there is a clear and urgent need to bridge the existing gaps in the legal and regulatory framework, and in the enforcement of health regulations applicable to the private sector, as well as to create an enabling environment for more effective private sector participation in the health sector. The review demonstrates that the private health sector in Sri Lanka is a growing force, due both to greater investment from private players as well as greater demand from the population. The review highlights areas where a more effective engagement with the private sector could ensure that Sri Lanka is able to offer its citizens universal access to good quality health service while also stimulating economic growth.
    Keywords: access to health services, accountability, accounting, age structure, aging, ambulatory care, ancillary services, antenatal care, Availability of drugs, blood bank, blood ... See More + pressure, breastfeeding, burden of disease, catastrophic expenditure, Catastrophic Expenditures, child health, Childbirth, childhood vaccination, cleanliness, clinics, communicable diseases, cost of care, cost of health care, deaths, decision making, delivery of services, delivery system, dental surgery, diagnosis, diagnostic services, diagnostic tests, dispensaries, doctors, economic growth, embryo transfer, employment, epidemiological transition, ethical issues, family planning, financial information, general practitioners, Gross Domestic Product, gynecology, health authorities, HEALTH CARE, health care access, health care facility, health care financing, health care institutions, health care policy, health care provider, health care providers, Health Care Provision, health care services, health care system, health clinic, health coverage, health data, Health Database, health expenditure, health expenditures, Health Facilities, health financing, health indicators, health information, health institutions, Health Insurance, health insurance cover, health insurance coverage, health insurance policies, Health Policy, health promotion, health providers, health regulations, health research, health screening, Health Sector, health service, health service delivery, health service provision, health services, health service­delivery, Health Specialist, health status, health system, Health unit, health units, Healthcare, Healthcare Services, Homeopathy, Hospital Beds, hospital care, Hospitals, household budgets, household expenditure, Household Income, Human Development, human resources, human tissues, hygiene, illness, immunization, Income, income countries, independent medical practitioners, inequalities in health care, information system, inpatient care, Insurance, insurance companies, insurance firms, insurance premium, Insurance Premiums, interest rate, iron, laboratory services, laboratory technicians, Laboratory testing, legal framework, life expectancy, life insurance, marketing, medical benefits, medical bills, medical equipment, medical goods, Medical Insurance, medical records, medical services, medical staff, Medical Supplies, medication, medicines, mental health, Ministry of Finance, morbidity, mortality, nonprofit sector, notifiable diseases, nurses, Nursing, Nursing care, Nursing Homes, Nutrition, outcome indicators, outpatient care, outpatient services, PATIENT, Patient Satisfaction, Patients, Pediatrics, Pharmacists, physician, pocket payments, pocket payments by households, Policy Research, postnatal care, preventive care, preventive health services, Primary care, primary health care, Private Financing, private health insurance, Private Health Services, Private Hospital Sector, Private Hospitals, private insurance, private pharmacies, Private Providers, private sector, private sector actors, private sector financing, private sectors, private spending, provision of health care, provision of health services, provision of services, public expenditure, Public Health, Public Health Care, public health care system, public health objectives, public health programs, public health services, public health system, public hospital, public hospitals, public sector, public sectors, public services, quality of care, quality of health, quality of health care, quality of services, quality standards, regulatory framework, rural hospitals, school health, screening, service providers, Share of Health Expenditure, smoking, smoking cessation, Surgery, teaching hospitals, Total Expenditure, transparency, treatments, universal access, vaccination, visits, waste
    Date: 2014–06
  6. By: Bernard R.; Koubi E.; La Motte L.; Rose M.; Mercier L.
    Abstract: Despite an unfavourable macroeconomic environment, the profitability and financial situation of French insurers improved in 2012. In non-life insurance, premiums increased at a solid pace of 3%. They were mainly fuelled by personal insurance business lines, whereas premiums from corporate business lines remained almost flat in 2012, with mixed results across lines of business. Meanwhile, the cost of claims in the 2012 accounting year (for all accident years) rose slightly more than gross earned premiums, thereby causing the total combined ratio to move slightly higher. Some lines of business were more affected than others: technical balances deteriorated in health & accident, general third-party liability and transport insurance, while combined ratios improved steadily in motor insurance, coming close to the 100% breakeven point. The improvements in financial markets compared to 2011 led to: (i) an increase in realised capital gains, allowing insurers to maintain a stable underwriting margin compared to 2011, close to 5% of gross earned premiums; (ii) a surge in unrealised capital gains resulting in improved solvency ratios across the board. Excluding unrealised capital gains, the improvement in the solvency position was more modest. In life insurance, the top 12 companies have been quite resilient to the negative effects of the financial crisis and showed higher profitability rates than one year before. The return on equity (RoE) went up to its 2009 and 2010 levels, to 8% from 5.3% in 2011 when the sector had been hit by sovereign debt write-downs. Moreover, realised gains in 2012 allowed insurers to generate more profits to be ultimately shared with policyholders, while in 2011 insurers had had to use their profit-sharing reserves in order to avoid a sharp decline in returns distributed to policyholders. Yet, the decrease in net inflows which started in the third quarter of 2011 continued during the year 2012. On the one hand, volatility in financial markets and uncertainties relating to tax regime may have driven investors away from life insurance towards short-term savings plans (e.g. “livret A” passbooks). On the other hand, the sluggish economic environment and the structural shifts due to an aging population contributed to increase redemptions and benefits paid to policyholders. The solvency position of the top 12 life insurance companies was boosted by the sharp increase in unrealised capital gains on investments (life insurance firms have large exposure to debt securities, the price of which increased sharply in 2012). Excluding unrealised capital gains, the solvency ratio went up to its 2009 level (121%) from depressed 2010 and 2011 levels. In addition to the risks that are specific to the insurance business and that require adequate provisioning, the major risk for insurance firms in the current economic environment remains the low interest rate regime which makes it difficult to provide policyholders with high returns and may give insurance companies little choice but to pile up low-yield debt securities which could expose them to an upward interest rate shock later on. It is therefore essential that life insurance firms continue to take the utmost care to prudent profit-sharing policies and guaranteed interest rates. Besides, it is important that firms continue to keep acquisition and management costs well under control.
    Keywords: life insurance, non-life insurance, property and casualty, loss ratio, combined ratio, solvency.
    JEL: G22
    Date: 2013
  7. By: Branscum, D. Ethan; Nalley, Lawton L.; Dixon, Bruce L.; Siebenmorgen, Terry J.; Tack, Jesse; Danforth, Diana M.
    Abstract: Rice production is distinguished from most other field crops by distinct differences in yields across cultivars and producers being paid on production as a result of post-harvest milling into head rice and brokens. In the ten years of Arkansas harvest data from performance trials in six different locations, hybrids are shown the have 19 percent higher paddy yields and head rice yield rates 1.8 percentage points lower than conventional varieties. In crop insurance yield protection and revenue protection policies, no distinctions in premiums are made on the basis of variety. Adjustments for adverse milling outcomes are made only in the most extreme cases. Using a three-equation, econometric model to predict paddy yields, milled rice yields and head rice yields, the relative returns to yield protection and revenue protection crop insurance are estimated. Additionally, a policy that is more sensitive to milling deficiencies is explored. Results indicate some advantage for hybrids compared with conventional cultivars as a ratio of indemnities to premiums. A revenue protection policy that would cover adverse milling outcomes would lessen risk marginally.
    Keywords: Rice, crop insurance, milling yields, cultivar differences, Arkansas, Crop Production/Industries, Production Economics, Q18, Q12,
    Date: 2014–09
  8. By: Ohanian, Lee E. (Federal Reserve Bank of Minneapolis); Holmes, Thomas J. (Federal Reserve Bank of Minneapolis)
    Abstract: Pay-with-promises compensation plans accumulate liability for future employee benefits, such as retiree health insurance. A simple economic model demonstrates that such plans can exacerbate fiscal crises faced by cities that experience external economic shocks, such as the departure of a major employer. City leaders often raise taxes and/or reduce public services to pay off legacy employee debts, and such steps encourage residents to move out, reducing the tax base and raising fiscal stress. Pay-as-you-go compensation plans are more prudent; they settle liabilities to employees paycheck by paycheck.
    Date: 2014–09–25
  9. By: Alicia H. Munnell; Jean-Pierre Aubry
    Date: 2014–09
  10. By: Timothée Demont (CERDI, University of Auvergne)
    Abstract: In developing countries, most poor households experience extremely variable in-come because of a large exposure to climatic, economic and policy shocks, combined with a lack of appropriate insurance devices. Extreme weather events, in particular, are projected to become more frequent in a warming climate, leaving rainfed agriculture and large populations in developing countries at risk. In this context, reliable access to finance in general and credit in particular can potentially bring welfare-improving opportunities to smooth household consumption. This paper documents the extent and the nature of the reactions to rainfall shocks that can be attributed to the participation to informal savings and credit groups in villages of Northern India. I exploit first-hand panel data measuring the living standards of member and control households, coupled with meteorological data at the district-level. I find that agricultural production and income are very dependent on the monsoon quality. Interestingly, while the access to credit collapses for control households after a bad monsoon, Self-Help Groups (SHGs) appear to be robust credit sources that offer to member households the possibility to increase borrowing in order to cope with shocks, even when those are largely covariate within the village. This in turn implies a higher degree of food security over the year and a lower need for temporary migration following a large negative shock. Finally, I review some noteworthy features that allow SHGs to withstand covariate shocks, though potentially at a cost in terms of longer-term insurance.
    Keywords: Microfinance, climate shocks, income smoothing, risk-coping strategies
    JEL: O13 O15 G21 Q54
    Date: 2014–10
  11. By: Daniel Harenberg (ETH Zurich, Switzerland); Alexander Ludwig (CMR & FiFo, University of Cologne)
    Abstract: When markets are incomplete, social security can partially insure against idiosyncratic and aggregate risks. We incorporate both risks into an analytically tractable model with two overlapping generations and demonstrate that they interact over the life-cycle. The interactions appear even though the two risks are orthogonal and they amplify the welfare consequences of introducing social security. On the one hand, the interactions increase the welfare benefits from insurance. On the other hand, they can in- or decrease the welfare costs from crowding out of capital formation. This ambiguous effect on crowding out means that the net effect of these two channels is positive, hence the interactions of risks increase the total welfare benefits of social security.
    Keywords: social security; idiosyncratic risk; aggregate risk; welfare; insurance; crowding out
    JEL: C68 E27 E62 G12 H55
    Date: 2014–09
  12. By: Marcu, Mircea (University of Florida); Knapp, Caprice (University of Florida); Madden, Vanessa (University of Florida); Brown, David (University of Alberta, Department of Economics); Wang, Hua (University of Florida); Sloyer, Phyllis (Florida Department of Health)
    Abstract: Objective: The Children’s Medical Services Network, a carved-out fee-for-service health care delivery system for Florida’s Children with Special Health Care Needs (CSHCN), chose to develop an Integrated Care System (ICS) for its enrollees. The goal of this study is to analyze the effects of the ICS managed care program on the Medicaid expenditures of CSHCN. Data Sources: Administrative data from 3,947 CSHCN enrolled in Florida’s Medicaid program between 2006 and 2008 for two treatment and control counties were included in the analyses. Methods: To account for the unique nature of health care expenditures data, five econometric models were constructed. These models were used to estimate differences in health care expenditures between CSHCN in the reform and control counties before and after the implementation of the ICS controlling for demographic and individual health status. Principal Findings: The ICS program decreased outpatient, inpatient, pharmacy, and total costs. These effects were statistically significant for one of the reform counties. Emergency room costs increased slightly, though not significantly. Among the econometric models, the Generalized Linear Models outperforms the Ordinary Least Squared regressions. Conclusions: This analysis provides evidence that Managed Care programs such as Florida’s ICS have the potential to reduce health care expenditures.
    Keywords: children; medicaid; managed care; health care cost; health econometrics
    JEL: C20 I10 I18
    Date: 2014–09–01
  13. By: Santiago Garriga (UNLP)
    Abstract: El Plan Nacer es un programa del Ministerio de Salud de la Nación Argentina que invierte recursos con el objetivo de mejorar la cobertura y calidad de los servicios de salud en niños menores de seis años, mujeres embarazadas y puérperas que no poseen obra social. La novedad del mismo radica en la generación de un seguro público de salud para la población materno-infantil sin cobertura social y en la aplicación de un modelo de financiamiento basado en resultados. Este trabajo investiga los efectos del Plan Nacer sobre la mortalidad infantil en la Argentina siguiendo un enfoque no-experimental, basándose particularmente en la metodología de diferencias en diferencias, que consiste en la comparación de condiciones sanitarias entre poblaciones inscriptas y no inscriptas al programa, antes y después de su implementación. La fuente principal de variación es la participación en el programa a nivel departamental. El análisis de impacto realizado considera el caso de un tratamiento en donde las unidades bajo programa están sujetas a distintos grados de exposición al mismo. Los resultados encontrados indican que el Plan Nacer genera una reducción de la tasa de mortalidad infantil. El resultado es ambiguo si se divide a la tasa de mortalidad infantil entre la tasa de mortalidad neonatal, y la tasa de mortalidad post-neonatal: mientras que el Plan tiene un impacto negativo sobre la segunda, no ocurre lo mismo con la primera. Además no parecería existir un efecto del programa sobre la tasa de mortalidad materna.
    JEL: C33 I12 I38
    Date: 2014–09
  14. By: Gandolphe S.; Frey L.; Bahuaud B.
    Abstract: Conduite depuis 2008, l’enquête sur les taux de revalorisation des provisions mathématiques des contrats de capitalisation et des contrats individuels d’assurance vie a été étendue en 2012 aux contrats collectifs et PERP. Son exploitation comporte à la fois un objectif de suivi prudentiel – notamment au regard de la politique de gestion des placements en représentation et de l’équilibre du compte de résultat – et de suivi des pratiques commerciales en assurance-vie. Dans une conjoncture macroéconomique dégradée, les taux d’intérêt à long terme ont continué de baisser en 2012 pour atteindre des niveaux historiquement bas (le taux à 10 ans des obligations d’État français est revenu de 3,2% en moyenne mensuelle en décembre 2011 à 2,0% en décembre 2012 et il se situait autour de 1,9% en moyenne mensuelle en mai 2013). Ce mouvement a pesé sur les produits d’intérêt des actifs investis par les assureurs dans la période de taux bas et par conséquence sur les taux de revalorisation servis aux assurés. Dans ce contexte, le taux de revalorisation moyen des contrats (pondéré par les provisions mathématiques correspondantes), net des frais de gestion, a baissé légèrement entre 2011 et 2012, revenant de 3,0% à 2,9%. Cette baisse modérée fait suite au fort recul de 2011, qui avait été lui-même plus marqué que la moyenne des années précédentes (les taux de revalorisation sont revenus de 4,1% en 2007 à 3,9% en 2008, puis 3,6% en 2009 et 3,4% en 2010). Par rapport à 2011, les assureurs vie ont néanmoins pu intégrer dans leur politique de fixation des taux au titre de 2012 un environnement financier moins dégradé sur le marché des dettes souveraines et une remontée des cours boursiers. Même si la part des provisions mathématiques revalorisées à un taux inférieur à celui de l’année précédente reste prépondérante (66%), elle est néanmoins très inférieure à celle de 2011 (91%). De surcroit, une part plus importante des provisions mathématiques a enregistré un relèvement du taux de revalorisation net par rapport à l’année précédente (14% en 2012 contre 2% en 2011) ou une stabilité (20% des provisions mathématiques 2012 contre 7% en 2011). Un peu moins de la moitié des provisions mathématiques, soit 46%, affichent en 2012 un taux de revalorisation supérieur à 3,0%. En 2011, 58% des provisions mathématiques avaient un taux de revalorisation qui dépassait ce seuil. La très grande majorité (83%) des provisions mathématiques est restée revalorisée à un taux supérieur à 2,5% en 2012. La dispersion des taux de rendement est stable d’une année sur l’autre. En 2012, le taux moyen pondéré des 25% de provisions mathématiques les moins rémunérées a été de 2,3% alors que les 25% de provisions les plus rémunérées l’ont été à un taux moyen de 3,6%. Ces taux étaient respectivement de 2,4% et 3,7% en 2011. Tout comme en 2011, une très grande majorité d’assureurs procède à une différenciation des taux entre les contrats en 2012 : seulement 8% des sociétés retenues pour l’étude (contre 6% en 2011) ont proposé un taux identique pour tous leurs contrats, ceux-ci représentant 0,3% du total des provisions mathématiques (contre moins de 0,1% en 2011). L’écart interquartile des taux de revalorisation des organismes sur leurs différentes lignes de contrats est inférieur à 30 points de base pour près de 65% des assureurs de l’échantillon. Ces contrats représentent 46% des provisions mathématiques totales, exprimant des écarts plus faibles pour les organismes de petite taille. La diminution du taux de revalorisation moyen servi aux contrats fermés aux affaires nouvelles a été légèrement plus marquée que pour les contrats ouverts. Ces derniers affichent cependant encore un taux de revalorisation moyen pondéré inférieur à celui des contrats fermés (2,90% contre 2,93%), en général plus anciens. Un peu plus de deux tiers des provisions mathématiques présentent un taux technique 2012 inférieur ou égal à 0,2%. Par ailleurs, un taux technique inférieur ou égal à 2% en 2012 s’applique à plus de 85% des provisions mathématiques. Cette faiblesse des taux techniques est un facteur de stabilité important pour le secteur de l’assurance-vie français dans un environnement de taux bas, tout en offrant une garantie de stabilité du capital aux assurés.
    Keywords: .
    Date: 2013

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