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on Insurance Economics |
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Issue of 2015‒03‒05
twelve papers chosen by Soumitra K. Mallick Indian Institute of Social Welfare and Business Management |
| By: | Sebastian Panthöfer |
| Abstract: | This paper studies risk selection between public and private health insurance when some individuals can purchase private insurance by opting out of otherwise mandatory public insurance. Using a theoretical model, I show that public insurance is adversely selected when insurers and insureds are symmetrically informed about health-related risks, and that selection can be of any type (advantageous or adverse) when insureds have private information about health risks. Drawing on data from the German Socio-Economic Panel, I find that: (1) public insurance is adversely selected under the German public health insurance with opt-out scheme, (2) individuals adversely select public insurance based on self-assessed health and advantageously select public insurance based on risk aversion, and (3) there is evidence of asymmetric information. |
| Keywords: | Public and private health insurance, Risk selection, Asymmetric information |
| JEL: | D82 H51 I13 I18 |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:cte:werepe:we1504&r=ias |
| By: | Bokusheva, Raushan |
| Abstract: | The study develops the methodology for a copula-based weather index insurance rating. As the copula approach is better suited for modeling tail dependence than the standard linear correlation method, we suppose that copulas are more adequate for pricing a weather index insurance contract against extreme weather events. To capture the dependence structure in the left tail of the joint distribution of a weather variable and the farm yield, we employ the Gumbel survival copula. Our results indicate that, given the choice of an appropriate weather index to signal extreme drought occurrence, a copula-based weather insurance contact might provide higher risk reduction compared to a regression-based indemnification. |
| Keywords: | catastrophic insurance, weather index insurance, copula, insurance contract design |
| JEL: | C18 G22 Q14 |
| Date: | 2014–01–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:62339&r=ias |
| By: | Tuzemen, Didem (Federal Reserve Bank of Kansas City); Becker, Thealexa (Federal Reserve Bank of Kansas City) |
| Abstract: | We study the e ect of the Massachusetts health care reform on the uninsured rate and the self-employment rate in the state. The reform required all individuals to obtain health insurance, required most employers to o er health insurance to their employees, formed a private marketplace that o ered subsidized health insurance options and ex- panded public insurance. We examine data from the Current Population Survey (CPS)for 1994-2012 and its Annual Social and Economic (ASEC) Supplement for 1996-2013. We show that the reform led to a dramatic reduction in the state's uninsured rate due to increased enrollment in both public and private health insurance. Estimation results from di erence-in-di erences models and the synthetic control method indicate that the aggregate self-employment rate was higher in the state after the implementation of the reform. We conclude that easier access to health insurance encouraged self-employment in Massachusetts. There are many similarities between the Massachusetts health care reform and the national health care reform, the Patient Protection and Affordable Care Act (PPACA). Based on Massachusetts' experience, the PPACA will lower the national uninsured rate and may lead to a higher self-employment rate in the nation. |
| Keywords: | Massachusetts health care reform; Patient Protection and Affordable Care Act; self-employment; health insurance; difference-in-differences model; synthetic control method |
| JEL: | C10 C15 E24 I13 I18 I38 L26 |
| Date: | 2014–11–25 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp14-16&r=ias |
| By: | Koen van der Veer |
| Abstract: | Private trade credit insurance - covering the risk of non-payment - plays an important role in facilitating domestic and international trade, especially within Europe. Due to lack of data, however, very little is known about the influence of shocks on the market for private trade credit insurance. This paper studies the influence of claims on the availability and price of export credit insurance, using unique bilateral country- level data covering worldwide insurance underwriting by a global trade credit insurer from 1992 to 2006. Country-pair and time-varying country fixed effects allow me to control for bilateral heterogeneity and country-specific insurance supply-and-demand shocks in both exporting and destination countries. In doing so, I find that a doubling of claims results, on average, in a decline in the share of bilateral exports insured by about 11% and rise in premium level by about 4%. These claims effects increase when the insurer makes a loss and further rise with the size of the loss. I also find evidence indicating that the global trade credit insurer transmits extreme losses across countries by reducing its supply of export credit insurance. Overall, these results help our understanding of potential trade finance constraints in times of crisis, such as during the 2008-09 global trade collapse. |
| Keywords: | trade credit insurance; export credit insurance; claims; international trade |
| JEL: | F14 G01 G22 |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:462&r=ias |
| By: | Etienne Lalé |
| Abstract: | We study the effects of front-loading the payment of unemployment benefits in an equilibrium matching framework with precautionary savings. Front-loading the benefit system trades off fewer means to smooth consumption at long unemployment durations for improved insurance upon job loss. In the United States where jobless spells are typically frequent but short, we find that front-loading the benefit system yields significant welfare gains for new benefit recipients. The gains are lower in the aggregate, but are not completely offset by general equilibrium effects. Comparison with a search effort model shows that the welfare figures are not specific to matching frictions. |
| Keywords: | Unemployment Insurance, Precautionary Savings, Labor-Market Frictions, Welfare Effect. |
| JEL: | E21 I38 J63 J65 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:bri:uobdis:15/651&r=ias |
| By: | Ellul, Andrew; Jotikasthira, Chotibhak; Lundblad, Christian T; Wang, Yihui |
| Abstract: | We provide new empirical evidence concerning the contentious debate over the use of historical cost (HCA) versus mark-to-market (MTM) accounting in regulating financial institutions. These accounting rules, through their interactions with capital regulations, alter financial institutions’ trading behavior. The insurance industry provides a natural laboratory to explore these interactions since significant differences exist in regulatory accounting rules: (1) life insurers have greater flexibility to hold speculative-grade assets under HCA than property and casualty insurers, which are required to use MTM, and (2) the degree to which life insurers have to recognize market value through impairment differs across U.S. states. In the context of the sizeable downgrades of asset-backed securities (ABS) during the 2007-2009 financial crisis, we show that insurers facing MTM are more likely to sell the downgraded ABS than insurers holding these assets under HCA. To improve their capital positions, insurers facing HCA disproportionately resort to gains trading, selectively selling their corporate and government bond holdings with the highest unrealized gains. This trading behavior transmits shocks across otherwise unrelated markets. |
| Keywords: | asset-backed securities (ABS); corporate bonds; fire sales; gains trading; historical cost accounting; insurance companies; mark to market; regulation |
| JEL: | G11 G12 G14 G18 G22 |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10450&r=ias |
| By: | Frank Potter; Jessica Ziegler; Grace Roemer; Scott Richman; Sheng Wang; Andrew Clarkwest; Katie Bodenlos |
| Abstract: | Errors in Federal–State Unemployment Insurance (UI) program payments have long been a concern to the U. S. Department of Labor (DOL) and other stakeholders. To maintain program solvency and public support for the program, it is crucial that payments are made only to eligible recipients and that payment amounts are correct. |
| Keywords: | unemployment insurance payments, unemployed workers, improper payments, overpayment, underpayment, IPIA, improper payment rate, benefit payments, BAM, benefit accuracy measurement |
| JEL: | J C |
| Date: | 2014–03–28 |
| URL: | http://d.repec.org/n?u=RePEc:mpr:mprres:bcb8f32f6dc34429a659552465ecc3fc&r=ias |
| By: | Fabian, Capitanio; Felice, Adinolfi; Fabio G., Santeramo |
| Abstract: | Rapid environmental changes can affect agriculture by introducing additional sources of uncertainty. Conversely, policy interventions to help farmers cope with risks may have strong impacts on the environment. In this paper, we evaluate the effects of public risk management programmes, particularly subsidies on crop insurance, on fertilizer use and land allocation. We implement a mathematical programming model based on data collected from 1,092 farms in Puglia, a southern Italy region. The results show that under the current crop insurance programmes, input use is expected to increase, while the effect on production is likely to be crop-specific. The policy and environmental implications are discussed. |
| Keywords: | uncertainty; risk management; input use; multifunctionality |
| JEL: | Q18 Q50 |
| Date: | 2014–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:62505&r=ias |
| By: | Raul Santaeulalia-Llopis (Washington University in St. Louis); Leandro De Magalhaes (University of Bristol) |
| Abstract: | We use new and unique nationally-representative panel ISA data for Malawi, Tanzania and Uganda to explore the degree of consumption insurance in Sub-Saharan Africa. Partly, our contribution is to construct accurate and consistent measures of consumption and income across time and space for these countries at the household level from the LSMS-ISA Surveys. Our main result is strong evidence of income inequality leading to consumption inequality, in particular, in rural areas. First, our full-risk sharing tests suggest complete markets allocations are strongly rejected (though less so in urban areas). Urban households can insure better despite facing (as we discuss below) more sizeable permanent shocks, while rural households insure poorly even though they are likely to get hit mostly by transitory shocks. We use the richness of our data in its full extent to explore the robustness of this result to a large set of idiosincratic risks beyond income such as population risk, wealth risk (livestock, land), health risk (illnesses/injuries/hospitalizations), marital risk, migration risk, refugee risk, weather risk, and intermediate inputs risk. Our results are robust to the type of consumption item (food, clothing, etc.) and income source (agricultural, labor, etc.). Geographic determinants such as distance to roads, city, coastal areas also support our results. Further, we find that the degree of insurance decreases with the level of aggregation, that is, individuals within enumeration areas/districts tend to be more insured than across them. Second, we show that the raw and residual variances of income and consumption over the life-cycle are highly correlated in both rural and urban areas suggesting that income shocks do transmit into consumption in both areas. Further, we find that in rural areas residual inequality does not grow over the lifecycle, suggesting a prominent role of transitory shocks in these settings (not so in urban areas where residual inequality accumulates). These two cohesive observations, the fact that (i) consumption in rural areas (where the vast majority of households in these poor countries live) largely responds to income shocks and that (ii) these shocks are of transitory nature, cast doubt on the permanent income hypothesis for rural areas. Then, we explore market structures that can explain this finding: transitory shocks have strong implications for consumption growth in rural areas. To do so, we use an agricultural model with subsistence consumption that incorporates potential credit and savings constraints. To asses the effects of saving constraints we use information on substistence consumption, food security, storage technology (harvest lost and infrastructures) and crime/theft/violance indicators. To assess the effect of credit constraints on insurance we use complementary data on the ability to borrow that includes detailed information on loan applications and its outcome (this includes self-selection reports into loan application as those who did not apply but wanted a loan are also examined). Further, our decompositions of insurance tests across wealth (separately for livestock and land) groups further substantiate the evidence on credit constraints. The associated empirical tests find strong evidence of the presence of both constraints and their signicant eect on consumption insurance. Finally, we explore the dichotomies between self- and mutual insurance, and between private and public transfers. Using self-reported data on the use of insurance mechanisms we nd that those individuals that claim to be only mutually insured (e.g. resort to family, friends, etc. to cope with shocks) are able to insure their consumption better than those who are only self-insured (through savings, labor supply, etc.). In this context, the fact that relatively few individuals (about 20% only) rely on mutually insurance mechanisms suggests the presence of limitted commitment economies where default is highly present. Last, we nd little evidence of crowding out using the fertilizer policy implemented in Malawi, the most important public transfer conducted in these three country, as individuals receiving fertilizers also tend to be more privately insured. We conclude that low partial insurance is the norm in the rural areas of SSA and that credit constraints, savings constraints, and imperfect enforceability with a high risk of default are good reasons for it. The one lesson that we are learning is that theories that incorporate credit constraints, savings constraints, and some degree of lack of commitment are the ones more suitable to understand the degree of consupmtion insurance in SSA and possibly growth in these contexts. We are currently pursuing a quantitative theory of that short. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed014:1287&r=ias |
| By: | Eric Schone Randall S. Brown |
| Keywords: | Risk Adjustment, Health Care Medicaid, Medicare, Health |
| JEL: | I |
| Date: | 2013–07–30 |
| URL: | http://d.repec.org/n?u=RePEc:mpr:mprres:498be6c41a5249ac8b41bb2d8e397f5a&r=ias |
| By: | Jason Abaluck; Jonathan Gruber; Ashley Swanson |
| Abstract: | Medicare Part D enrollees face a complicated decision problem: they must dynamically choose prescription drug consumption in each period given difficult- to-find prices and a non-linear budget set. We use Medicare Part D claims data from 2006-2009 to estimate a flexible model of consumption that accounts for non-linear budget sets, dynamic incentives due to myopia and uncertainty, and price salience. By using variation away from kink points, we are able to estimate structural models with a linear regression of consumption on coverage range prices. We then compare performance under several candidate models of expectations and coverage phase weighting. The estimates suggest small marginal price elasticities and substantial myopia; we also find evidence that salient plan characteristics impact consumption beyond their effect on out-of-pocket prices. A hyperbolic discounting model which allows for salient plan characteristics fits the data well, and outperforms both rational models and alternative behavioral models. |
| JEL: | D12 G22 I13 |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20976&r=ias |
| By: | Eric Schone; Randall Brown; Sarah Goodell |
| Keywords: | Risk Adjustment Health Care Medicaid, Medicare Health |
| JEL: | I |
| Date: | 2013–07–30 |
| URL: | http://d.repec.org/n?u=RePEc:mpr:mprres:7398914a13d64be2b6a470d67db5cf3e&r=ias |