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on Insurance Economics |
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Issue of 2015‒05‒02
seventeen papers chosen by Soumitra K. Mallick Indian Institute of Social Welfare and Business Management |
| By: | Rivka Weiser; Marsha Gold |
| Keywords: | Medicare, Medicaid, Dually Eligible Beneficiaries |
| JEL: | I |
| Date: | 2015–04–22 |
| URL: | http://d.repec.org/n?u=RePEc:mpr:mprres:5143d17a2e364c42bbbc705d959d7f8e&r=ias |
| By: | Harris, Timothy; Yelowitz, Aaron |
| Abstract: | We evaluate the extent to which there are racial disparities in life insurance coverage using multiple years of the Survey of Income and Program Participation between 2001 and 2010. We find that African-Americans hold significantly more life insurance after controlling for other factors, especially employer-sponsored and whole life insurance. We demonstrate that our findings diverge from prior work because we examine all households instead of focusing exclusively on married and cohabitating households. The findings on life insurance coverage and composition imply that earnings shocks due to mortality are not a contributing factor to racial disparities in wealth. |
| Keywords: | Life Insurance, Racial disparities, Employer Sponsored Life Insurance, Whole Life Insurance |
| JEL: | D31 G22 J15 |
| Date: | 2015–04–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:64005&r=ias |
| By: | Haan, Peter (DIW Berlin); Prowse, Victoria L. (Cornell University) |
| Abstract: | We analyze empirically the optimal design of social insurance and assistance programs when families obtain insurance by making labor supply choices for both spouses. For this purpose, we specify a structural life-cycle model of the labor supply and savings decisions of singles and married couples. Partial insurance against wage and employment shocks is provided by social programs, savings and the labor supplies of all adult household members. The optimal policy mix focuses mainly on Social Assistance, which provides a permanent universal household income floor, with a minor role for temporary earnings-related Unemployment Insurance. Reflecting that married couples obtain intra-household insurance by making labor supply choices for both spouses, the optimal generosity of Social Assistance decreases in the proportion of married individuals in the population. The link between optimal program design and the family context is strongest in low-educated populations. |
| Keywords: | life-cycle labor supply, family labor supply, unemployment insurance, social assistance, design of benefit programs, intra-household insurance, household savings, employment risk, added worker effect |
| JEL: | J18 J68 H21 I38 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp8980&r=ias |
| By: | Peter Haan; Victoria Prowse |
| Abstract: | We analyze empirically the optimal design of social insurance and assistance programs when families obtain insurance by making labor supply choices for both spouses. For this purpose, we specify a structural life-cycle model of the labor supply and savings decisions of singles and married couples. Partial insurance against wage and employment shocks is provided by social programs, savings and the labor supplies of all adult household members. The optimal policy mix focuses mainly on Social Assistance, which provides a permanent universal household income floor, with a minor role for temporary earnings-related Unemployment Insurance. Reflecting that married couples obtain intra-household insurance by making labor supply choices for both spouses, the optimal generosity of Social Assistance decreases in the proportion of married individuals in the population. The link between optimal program design and the family context is strongest in low-educated populations. |
| Keywords: | Life-cycle labor supply, Family labor supply, Unemployment Insurance, Social Assistance, Design of benefit programs, Intra-household insurance, Household savings, Employment risk, Added worker effect. |
| JEL: | J18 J68 H21 I38 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1468&r=ias |
| By: | Andersen, Torben M. (Aarhus University); Kristoffersen, Mark Strom (Aarhus University); Svarer, Michael (Aarhus University) |
| Abstract: | Unemployment insurance schemes include conditions on past employment history as part of the eligibility conditions. This aspect is often neglected in the literature which primarily focuses on benefit levels and benefit duration. In a search-matching framework we show that benefit duration and employment requirements are substitute instruments in affecting job search incentives and thus gross unemployment. We analyse the optimal design of the unemployment insurance system (benefit levels, duration and employment requirements) under a utilitarian social welfare function. Simulations show that a higher insurance motive captured by more risk aversion implies higher benefit generosity and more lax employment requirements but also shortened benefit duration. |
| Keywords: | reentitlement effects, unemployment insurance, business cycle |
| JEL: | E32 H3 J65 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp8991&r=ias |
| By: | Chute, Benjamin W. (Middlebury College); Wunnava, Phanindra V. (Middlebury College) |
| Abstract: | This study investigates the prevalence and severity of job immobility induced by the provision of employer-sponsored health insurance – a phenomenon known as 'job-lock'. Using data from the National Longitudinal Survey of Youth from 1994 to 2010, job-lock is identified by measuring the impact of employer-sponsored health insurance on voluntary job turnover frequency. Estimates from a logistic regression with random effects indicate that job-lock reduces voluntary job turnover by 20% per year. These results that are consistent with past research and are also supported by two alternative identification strategies employed in this paper. Our results indicate a persistence of the job-lock effect, despite two major policy interventions designed to mitigate it (COBRA and HIPAA) and signal a fundamental misunderstanding of its causes. Both policies made health insurance more portable between employers, but this paper presents evidence from a quasi-natural experiment to suggest that the problem is a lack of viable alternative private sources of health insurance. In this model, we find evidence that access to health insurance through one's spouse or partner dramatically increases voluntary job turnover. This finding has significant bearing on predicted impacts of the Patient Protection and Affordable Care Act (2010) and the individual health insurance exchanges catalyzed by it; these new markets will create risk pools that may 'unlock' a job-locked individual by providing them a viable alternative to employer-sponsored health insurance. |
| Keywords: | job-lock, COBRA (1985), HIPAA (1996), Affordable Care Act (2010), random effects, difference-in-difference, voluntary job switch |
| JEL: | I13 J16 J32 J51 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp8989&r=ias |
| By: | Frech, Ted E; Zweifel, Peter |
| Abstract: | This article extends the received literature on optimal provider payment by accounting for consumer heterogeneity in preferences for health insurance and health care. This heterogeneity breaks down the separation of the relationship between providers and the health insurer and the relationship between consumers and the insurer. Both experimental and market evidence for a high degree of heterogeneity are presented. Given heterogeneity, a uniform policy fails to effectively control moral hazard, while incentives for risk selection created by community rating cannot be neutralized through risk adjustment. Consumer heterogeneity spills over into relationships with providers, such that a uniform contract with providers cannot be optimal either. The decisive condition for ensuring optimality of provider payment is to replace community rating (which violates the principle of marginal cost pricing) by risk-rating of contributions combined with subsidization targeted at high risks with low incomes. |
| Keywords: | Social and Behavioral Sciences, Community Rating, Health Insurance, Optimal Payment |
| Date: | 2015–04–27 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:ucsbec:qt37b9q0k3&r=ias |
| By: | Xiaodong Du; David A. Hennessy (Center for Agricultural and Rural Development (CARD)); Hongli Feng |
| Abstract: | Rate setting procedures for United States crop yield and revenue insurance contracts employ methods that presume correlations to be state invariant. Whether this is true matters. If yield-yield correlations strengthen when crops are subject to widespread stress, then diversification opportunities for private insurers weaken when most needed, and an insurer's portfolio of retained business may not be as diversified as standard statistics would suggest. For government outlays, such tail dependence will increase the transactions and political costs of reallocations from the general fund. In this paper we propose a simple model of yield correlations according to interactions between a weather outcome and a land unit's yield resilience to adverse shocks, as might be measured by the United States Soil Conservation Service's land capability classification. Our model shows that yield-yield tail dependence is to be expected and, furthermore, should take a particular form. In better growing regions, yield correlations across units should be stronger in right tails than in left tails, whereas in marginal growing regions the reverse should apply. Using USDA Risk Management Agency unit level data and a variety of statistics, we find strong evidence in favor of this land yield resilience hypothesis. Our findings call into question the appropriateness of current USDA rate-setting methodologies, which posit constant state-conditional ordinal correlations by implicitly assuming that yields can be represented by a Gaussian copula. A goodness-of-fit test rejects the standard Gaussian copula model, implying that existing RMA rate-setting methods are deficient. |
| Keywords: | actuarial fairness; crop insurance; Gaussian copula; geography of yield distributions; reinsurance; systemic risk. JEL Codes: G12, Q18, C1. |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:ias:cpaper:15-wp556&r=ias |
| By: | Niedrig, Tobias |
| Abstract: | I assess how Basel III, Solvency II and the low interest rate environment will affect the financial connection between the bank and insurance sector by changing the funding patterns of banks as well as the investment strategies of life insurance companies. Especially for life insurance companies, the current low interest rate environment poses a key risk since declining returns on investments jeopardize the guaranteed return on life insurance contracts, a core component of traditional life insurance contracts in several European countries. I consider a contingent claim framework with a direct financial connection between banks and life insurers via bank bonds. The results indicate that life insurers' demand for bank bonds increases over the mid-term but ultimately declines in the long-run. Since life insurers are the largest purchasers of bank bonds in Europe, banks could lose one of their main funding sources. In addition, I show that shareholder value driven life insurers' appetite for risk increases when the gap between asset return and liability growth diminishes. To check the robustness of the findings, I calibrate a prolonged low interest rate scenario. The results show that the insurer's risk appetite is even higher when interest rates remain persistently low. A sensitivity analysis regarding industry-specific regulatory safety levels reveals that contagion between bank and life insurer is driven by the insurers' demand for bank bonds which itself depends on the regulatory safety level of banks. |
| Keywords: | Basel III,Solvency II,Life Insurance,Interest Rate Guarantees,Asset Allocation,Contagion,Interconnectedness |
| JEL: | G11 G18 G22 G28 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:97&r=ias |
| By: | Carneiro, Pedro (University College London); Ginja, Rita (Uppsala University) |
| Abstract: | This paper studies the impact of permanent and transitory shocks to income on parental investments in children. We use panel data on family income, and an index of investments in children in time and goods, from the Children of the National Longitudinal Survey of Youth. Consistent with the literature focusing on non-durable expenditure, we find that there is only partial insurance of parental investments against permanent income shocks, but the magnitude of the estimated responses is small. We cannot reject the hypothesis full insurance against temporary shocks. Another interpretation of our findings is that there is very little insurance available, but the fact that skill is a non-separable function of parental investments over time results in small reactions of these investments to income shocks, especially at later ages. |
| Keywords: | insurance, human capital, consumption |
| JEL: | D12 D91 I30 J1 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp8979&r=ias |
| By: | Carneiro, Pedro; Ginja, Rita |
| Abstract: | This paper studies the impact of permanent and transitory shocks to income on parental investments in children. We use panel data on family income, and an index of investments in children in time and goods, from the Children of the National Longitudinal Survey of Youth. Consistent with the literature focusing on non-durable expenditure, we find that there is only partial insurance of parental investments against permanent income shocks, but the magnitude of the estimated responses is small. We cannot reject the hypothesis full insurance against temporary shocks. Another interpretation of our findings is that there is very little insurance available, but the fact that skill is a non-separable function of parental investments over time results in small reactions of these investments to income shocks, especially at later ages. |
| Keywords: | human capital; insurance |
| JEL: | J1 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10557&r=ias |
| By: | Cerqueti, Roy; Lupi, Claudio |
| Abstract: | In decision theory projects are usually evaluated in terms of their riskiness, and often decision under risk is intended as the one-shot-type binary choice of accepting or not accepting the risk. This paper elaborates on the concept of risk acceptance, and aims at developing a theoretical framework based on networks theory. In doing this, the interconnections between the random quantities involved in the decision are taken into account. The conditions to be satisfied in order for the risk-acceptance criterion to be consistent with the axiomatization of standard expected utility theory are also explored. In accordance with existing literature, we obtain that a risk evaluation problem can be meaningful even if it is not consistent with the standard axiomatization of expected utility. Some illustrative examples are also provided. |
| Keywords: | Risk acceptance, networks, decision theory, expected utility, insurance |
| JEL: | D81 D85 G22 |
| Date: | 2015–04–20 |
| URL: | http://d.repec.org/n?u=RePEc:mol:ecsdps:esdp15076&r=ias |
| By: | Niedrig, Tobias; Gründl, Helmut |
| Abstract: | The Liikanen Group proposes contingent convertible (CoCo) bonds as a potential mechanism to enhance financial stability in the banking industry. Especially life insurance companies could serve as CoCo bond holders as they are already the largest purchasers of bank bonds in Europe. We develop a stylized model with a direct financial connection between banking and insurance and study the effects of various types of bonds such as non-convertible bonds, write-down bonds and CoCos on banks' and insurers' risk situations. In addition, we compare insurers' capital requirements under the proposed Solvency II standard model as well as under an internal model that ex-ante anticipates additional risks due to possible conversion of the CoCo bond into bank shares. In order to check the robustness of our findings, we consider different CoCo designs (write-down factor, trigger value, holding time of bank shares) and compare the resulting capital requirements with those for holding non-convertible bonds. We identify situations in which insurers benefit from buying CoCo bonds due to lower capital requirements and higher coupon rates. Furthermore, our results highlight how the Solvency II standard model can mislead insurers in their CoCo investment decision due to economically irrational incentives. |
| Keywords: | Contingent Convertible Capital,CoCo Bond,Basel III,Solvency II,Life Insurance,Interconnectedness |
| JEL: | G11 G21 G22 G28 G32 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:98&r=ias |
| By: | Hugo Benítez-Silva; J. Ignacio García-Pérez; Sergi Jiménez-Martín |
| Abstract: | Unemployment rates in developed countries recently reached levels not seen in a generation, and workers of all ages are facing increasing probabilities of losing their jobs and considerable losses in accumulated assets. These events have increased the reliance that most (older) workers have on public social insurance programs, exactly at a time that public finances are suffering from a large drop in contributions. Using administrative and household level data, we empirically characterize a Life-Cycle model of retirement and claiming decisions in terms of the employment, wage, health, and mortality uncertainty faced by individuals. We analyze the role of three intertwined factors in the recent evolution of work and retirement benefits claiming behavior in the United States; namely, higher unemployment uncertainty, higher unemployment benefits, and wealth shocks. We find that higher employment uncertainty reduces work and increases early claiming, while higher unemployment benefits mildly reduce work and reduce claiming at early ages. Finally, negative wealth shocks increase both early claiming and work. When all these factors are combined, the final outcome is a mild decline in labor supply and relatively little variation in early claiming. |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:fda:fdaddt:2015-06&r=ias |
| By: | Gwyn Bevan; Lawrence D. Brown |
| Abstract: | This article considers how the 'accidental logics' of political settlements for the English National Health Service (NHS) and the Medicare and Medicaid programmes in the United States have resulted in different institutional arrangements and different implicit social contracts for rationing, which we define to be the denial of health care that is beneficial but is deemed to be too costly. This article argues that rationing is designed into the English NHS and designed out of US Medicare; and compares rationing for the elderly in the United States and in England for acute care, care at the end of life, and chronic care. |
| JEL: | N0 |
| Date: | 2014–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:57129&r=ias |
| By: | Noelle Denny-Brown; Brynn Hagen; Ciara Bradnan; Susan Williams |
| Abstract: | The Money Follows the Person (MFP) demonstration supports states’ efforts to help Medicaid beneficiaries living in long-term care facilities transition back to the community. |
| Keywords: | Money Follows the Person (MFP), Medicaid, community transitions, long-term services and supports (LTSS), home- and community-based services (HCBS), disabilities, quality monitoring |
| JEL: | I J |
| Date: | 2015–04–22 |
| URL: | http://d.repec.org/n?u=RePEc:mpr:mprres:821fc689a010482abca738263c6694fd&r=ias |
| By: | Kaizô Iwakami Beltrão; Sonoe Sugahara Pinheiro; Francisco Eduardo Barreto de Oliveira |
| Abstract: | This paper analyses the situation of the Brazilian population disaggregated by urban/rural condition with respect to Social Insurance and Social Assistance with emphasis on recent changes. It starts with a historical overview of the system, but concentrates on new provisions mandated by the 1988 Constitution. The 1988 Constitution defined new rules with regard to eligibility conditions and benefit values for both the rural and urban population. But it was only in July 1991, with Law 8213, that these changes were fully implemented. We compare, by sex and individual age, activity rates and probability of receiving benefits, before and after the changes in legislation for the urban and rural population. For the urban population we take into consideration the formalization of work ties. We compare, also in two instances in time, family structure and the importance of the income of the elderly in the family budget. Este texto compara a situação da população brasileira desagregada por condição de domicílio (urbano/rural) em dois instantes do tempo, 1988 e 1998, vis-à-vis a previdência e a assistência social, utilizando informações das PNADs. Principia com uma visão panorâmica da evolução do sistema de seguridade social brasileiro, com ênfase na previdência social, concentrando-se nas mudanças mais recentes. Ainda que a Constituição de 1988 tenha modificado as regras de elegibilidade e o valor dos benefícios tanto para a população urbana quanto rural, foi somente com a Lei 8.213, de julho de 1991, que essas mudanças foram inteiramente implementadas. São comparadas, por sexo e idade individual, as taxas de atividade e de recebimento de benefícios antes e depois da mudança de legislação para a população urbana e a rural. Na população urbana considera-se a formalização da relação de trabalho. Comparam-se também, as estruturas familiares, a participação da renda dos idosos na renda da família e a sua relevância no orçamento familiar. |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:ipe:ipetds:0112&r=ias |