nep-ias New Economics Papers
on Insurance Economics
Issue of 2015‒05‒22
ten papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Optimal Social Assistance and Unemployment Insurance in a Life-Cycle Model of Family Labor Supply and Savings By Peter Haan; Victoria Prowse
  2. Перспективы развития федерального фонда обязательного медицинского страхования By Angelika, Lavrinenko
  3. Income Insurance and the Equilibrium Term-Structure of Equity By Roberto Marfè
  4. Fiscal Reform and Improved Earthquake Insurance Claims-paying Capacity: Can the Two Coexist? —Attempting to reconcile heightened earthquake risk with sound fiscal policy— By Oguro, Kazumasa; Hiraizumi, Nobuyuki; Owen, Michael; Guo, Jicang
  5. Social Insurance, Payroll Tax Structure, and Saving Rates: An International Comparison for OECD Countries By Simin Mozayeni
  6. Modelling and Estimating Individual and Firm Effects with Count Panel Data By Jean-François Angers; Denise Desjardins; Georges Dionne; François Guertin
  7. How Not to Regulate Insurance Markets: The Risks and Dangers of Solvency II By Avinash D. Persaud
  8. Endogenous Censoring in the Mixed Proportional Hazard Model with an Application to Optimal Unemployment Insurance By Arkadiusz Szydlowski
  9. Maternal Health and Maternity Leave: Regression Discontinuity Evidence from Two Canadian Experiences on Lengthening and Benefits Enhancements with Health Administrative Data By Catherine Haeck; Pierre Lefebvre; Philip Merrigan
  10. Optimal Dividend Strategies for Two Collaborating Insurance Companies By Hansjoerg Albrecher; Pablo Azcue; Nora Muler

  1. 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
  2. By: Angelika, Lavrinenko
    Abstract: Due to the deterioration of the Russian economy on the background of instability in the ruble exchange rate and the fall in oil prices, according to the anti-crisis plan, the decision was made on the annual budget spending cuts. Despite the fact that within the framework of the plan expenditure on social services, including health sector should remain at the same level, in practice, there are some changes, in which the author is important to understand.
    Keywords: Mandatory Medical Insurance, Federal Mandatory Health Insurance Fund, anti-crisis plan, Health
    JEL: H40
    Date: 2015–02–08
  3. By: Roberto Marfè
    Abstract: This paper documents that GDP, wages and dividends are co-integrated but feature term-structures of risk respectively flat, increasing and decreasing. Income insurance within the firm from shareholders to workers explains those term-structures: distributional risk smooths wages and enhances the short-run risk of dividends. A simple general equilibrium model, where labor rigidity affects dividend dynamics and the price of short-run risk, reconciles standard asset pricing facts with the term-structures of equity premium and volatility and those of macroeconomic variables, at odds in leading models. Income insurance also helps to explain dividend growth predictability, cross-sectional value premia, counter-cyclical Sharpe-ratios, and interest rates term-premia.
    Keywords: term structure of equity, income insurance, dividend strips, distributional risk, equilibrium asset pricing
    JEL: D53 E24 E32 G12
    Date: 2015
  4. By: Oguro, Kazumasa; Hiraizumi, Nobuyuki; Owen, Michael; Guo, Jicang
    Abstract: From the standpoint of reconciling heightened earthquake risk with sound fiscal policy, this paper performs a simplified simulation analysis of obtainable risk reduction in proportion to reinsurance premiums to explore the potential for improving the claims-paying capacity of Japan’s earthquake insurance program by using reinsurance, which is currently considered the least expensive method for improving risk transfer/claims-paying capacity. We divided the roughly 5 trillion yen of risk that is currently retained by Japan’s earthquake insurance program into 21 layers, starting with four successive layers in the 200 billion yen to 1 trillion yen group and ending with four successive layers in the 4.2 to 5 trillion yen group. We then compared the price of risk (reinsurance premiums necessary for reducing one unit of risk) for the different layers. Our analysis indicated that the four layers in the 1.4 to 2.2 trillion yen group could be reinsured for the lowest price per unit risk. Hence, if these successive four layers were ceded, the reinsurance premiums to be paid under the base insurance premiums to be paid under the base case would be 42.5 billion yen (a 5.31% reinsurance premium rate is applied for ceding 800 billion yen risk), thereby making possible risk reduction on the order of 698.5 billion (99% Tail VaR).
    Keywords: Government Special Account reform, earthquake insurance program, claims-paying capacity, reinsurance, price of risk, Tail VaR
    JEL: H60 H61 H63
    Date: 2015–04
  5. By: Simin Mozayeni (SUNY New Paltz)
    Abstract: The motivation for this research is to examine the debate about the effect of social insurance on private savings, Feldstein [1974] and Leimmer and Lesony [1982]. I use time series data and alternative models to examine the hypothesis. With this objective I use an estimation model, as I describe below. Since programs and demographic among the OECD counties are significantly different, I first analyze and compare them, with special attention to similarities among the members of the European Union, which share common markets and have reciprocity programs for social security. In this context, I compare the basic statistics for wage income thresholds subject to payroll tax, their lower and upper thresholds, the marginal tax rates, and the respective shares of the employee-employer contributions for the countries in the sample. Since some OECD countries allow a maximum contribution and possible additional contributions, and have different provisions for deductibility of the payroll tax, these features of the programs are also compared. Since there are variations in social insurance tax rates for self-employed, we also compare them. Furthermore, we compare age eligibility, work history requirements, and the social security income and health care benefits across those countries. Since some countries have reciprocity for social security program in the European Union, their policies will also be considered. With such fundamental investigations, we then develop the model for empirical investigation, which is a multivariate. Both linear and log-linear specifications are considered. The dependent variable is household saving rates [per National Income and Product Account], during 1992-2011 [will be expand the time as data become available). The independent variables are: social security contributions as percentage of GDPs, (for comparison, the percentage of total tax revenues, in comparison to the OECD average are also considered), and relevant population demographics, macroeconomic factors such as the real rate of interest and the terms of trade, the Gini Coefficient, and expected social security benefits upon eligibility. We pay attention to the possibility of Collinearity and heteroscedasticity in our variables. Our preliminary results reject the hypothesis that social insurance replaces private savings. We have reviewed the relevant literature for theories of saving behaviors and social security. Our research is a new empirical contribution to the literature.
    Keywords: Social Insurance, Social Security, Household Saving Behavior, OECD Social Insurance Programs
    JEL: D19 D10 I30
  6. By: Jean-François Angers; Denise Desjardins; Georges Dionne; François Guertin
    Abstract: In this article, we propose a new parametric model for the modelling and estimation of accident distributions for drivers working in fleets of vehicles. The analysis uses panel data and takes into account individual and fleet effects in a non-linear model. Our sample contains more than 456,000 observations of vehicles and 87,000 observations of fleets. Non-observable factors are treated as random effects. The distribution of accidents is affected by both observable and non-observable factors from drivers, vehicles and fleets. Past experience of both individual drivers and individual fleets is very significant to explain road accidents. Unobservable factors are also significant, which means that insurance pricing should take into account both observable and unobservable factors in predicting the rate of road accidents under asymmetric information.
    Keywords: Accident distributions, drivers in fleet of vehicles, individual effect, firm effect, panel data, Poisson, gamma, Dirichlet, insurance pricing
    JEL: C23 C25 G22
    Date: 2015
  7. By: Avinash D. Persaud (Peterson Institute for International Economics)
    Abstract: Solvency II, which the European Parliament adopted in March 2014, codifies and harmonizes insurance regulations in Europe to reduce the risk of an insurer defaulting on its obligations and producing dangerous systemic side effects. The new directive tries to achieve these aims primarily by setting capital requirements for the assets of insurers and pension funds based on the annual volatility of the price of these assets. Persaud argues that these capital requirements will impose an asset allocation on life insurers and pension funds that does not serve the interests of consumers, the financial system, or the economy. The main problem with Solvency II is that the riskiness of the assets of a life insurer or pension fund with liabilities that will not materialize before 10 or sometimes 20 years is not well measured by the amount by which prices may fall during the next year. Solvency II fails to take account of the fact that institutions with different liabilities have different capacities for absorbing different risks and that it is the exploitation of these differences that creates systemic resilience. To correct this problem, Persaud offers an alternative approach that is more attuned to the risk that a pension fund or life insurer would fail to meet its obligations when they come due and less focused on the short-term volatility of asset prices.
    Date: 2015–04
  8. By: Arkadiusz Szydlowski
    Abstract: In economic duration analysis, it is routinely assumed that the process which led to censoring of the observed duration is independent of unobserved characteristics. The objective of this paper is to examine the sensitivity of parameter estimates to this independence assumption in the context of an economic model of optimal unemployment insurance. We assume a parametric model for the duration of interest and leave the distribution of censoring unrestricted, allowing it to be correlated with both observed and unobserved characteristics. This leads to loss of point-identification. We provide a practical characterization of the identified set with moment inequalities and suggest methods for estimating this set. In particular, we propose a profiled procedure that allows us to build a confidence set for a subvector of the model parameters. We apply this approach to estimate the elasticity of exit rate from unemployment with respect to unemployment benefit and find that both positive and negative values of this elasticity are supported by the data. When combined with the welfare formula in Chetty (2008), these estimates do not permit us to put an upper bound on the size of the welfare change due to an increase in the unemployment benefit. We conclude that given the available data alone, one cannot credibly judge if the unemployment benefits in the US are close to the optimal level.
    Date: 2015–06
  9. By: Catherine Haeck (Department of Economics, University of Quebec in Montreal); Pierre Lefebvre (Department of Economics, University of Quebec in Montreal); Philip Merrigan (Department of Economics, University of Quebec in Montreal)
    Abstract: Exploiting unique administrative longitudinal data sets on medical services provided to mothers before and after delivery, we estimate the causal effects of two large distinct parental leave reforms on maternal health outcomes, over the 5 years postpartum. The health outcomes are objective measures based on all types of medical services provided by physicians. For mothers publicly insured by the public prescription drug plan we can identify all drugs used, in particular those associated with depressive symptoms. The long time span of the longitudinal administrative data sets allows an assessment of short-run and long-run effects of maternity leave on mothers' health. The empirical approach uses a strict discontinuity design based on the day of regime change. The large samples of mothers, who gave birth three months before and three months after the two policy changes (in 2001 and 2006), are drawn randomly from the population of delivering women, all covered by the universal public health care program. We cannot find any strong evidence that the reforms had an effect on maternal health care costs, of a physical or of a mental nature, as measured by physicians' fee-for-service billing costs, prescription drug costs, or the number of hospitalizations.
    Keywords: maternal leave reform (2001 and 2006), longitudinal health administrative data, physical and mental health, costs and prescription drugs, universal public health and drugs insurance, parametric and non-parametric regression-discontinuity design
    JEL: I12 I18
    Date: 2014–10
  10. By: Hansjoerg Albrecher; Pablo Azcue; Nora Muler
    Abstract: We consider a two-dimensional optimal dividend problem in the context of two insurance companies with compound Poisson surplus processes, who collaborate by paying each other's deficit when possible. We solve the stochastic control problem of maximizing the weighted sum of expected discounted dividend payments (among all admissible dividend strategies) until ruin of both companies, by extending results of univariate optimal control theory. In the case that the dividends paid by the two companies are equally weighted, the value function of this problem compares favorably with the one of merging the two companies completely. We identify this optimal value function as the smallest viscosity supersolution of the respective Hamilton-Jacobi-Bellman equation and provide an iterative approach to approximate it numerically. Curve strategies are identified as the natural analogue of barrier strategies in this two-dimensional context. A numerical example is given for which such a curve strategy is indeed optimal among all admissible dividend strategies, and for which this collaboration mechanism also outperforms the suitably weighted optimal dividend strategies of the two stand-alone companies.
    Date: 2015–05

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