nep-ias New Economics Papers
on Insurance Economics
Issue of 2016‒02‒04
fourteen papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Current state and future prospects of crop insurance in Uzbekistan By Muradullayev, Nuriddin; Bobojonov, Ihtiyor; Mustafaqulov, Sherzod
  2. Climate Variability and Crop Insurance: An Optimization Analysis By Holmes II, Glyen; Lorenzo, Alfredo; Solis, Daniel; Thomas, Michael
  3. A post-mortem of the life insurance industry's bid for capital during the financial crisis By Barnes, Michelle L.; Bohn, James; Martin, Cynthia
  4. A unisex stochastic mortality model to comply with EU Gender Directive By An Chen; Elena Vigna
  5. Spatial search strategies of job seekers and the role of unemployment insurance By Elisa Guglielminetti; Rafael Lalive; Philippe Ruh; Etienne Wasmer
  6. The Roles of Industry Idiosyncrasy, Cost Efficiency, and Risk in Internationalization: Evidence from the Insurance Industry By Biener, Christian; Eling, Martin; Jia, Ruo
  7. Affordability of National Flood Insurance Program Premiums—Report 2 By Allen L. Schirm; Committee Member Others
  8. On a law of large numbers for insurance risks By Yumiharu Nakano
  9. Which fiscal capacity for the euro-area: Different cyclical transfer schemes in comparison By Sebastian Dullien
  10. Health Care Coverage and Access for Children in Low-Income Families: Stakeholder Perspectives from Texas By Leslie Foster
  11. The Economic Effects of the Trans-Pacific Partnership: New Estimates By Peter A. Petri; Michael G. Plummer
  12. Finland and Its Northern Peers in the Great Recession By Suni, Paavo; Vihriälä, Vesa
  13. Health Care Coverage and Access for Children in Low-Income Families: Stakeholder Perspectives from California By Dana Petersen; Rachel Miller
  14. Sovereign Debt and Incentives to Default with Uninsurable Risks By Bloise, Gaetano; Vailakis , YiannisAuthor-workplace-Name: University of Glasgow

  1. By: Muradullayev, Nuriddin; Bobojonov, Ihtiyor; Mustafaqulov, Sherzod
    Abstract: This study describes the importance and development of agricultural insurance sector in Uzbekistan. Agricultural insurance sector in Uzbekistan was established with the state initiative and government organizations still play an important role in service provision. However, agricultural insurance functions without state subsidies and about 30 percent of the crops are insured. This is comparatively better result while compared to other countries in the region. However, sectors still has several development constraints which are not discussed in the international literature. Therefore, the objective of this study is to describe the development path and challenges in agricultural insurance market in Uzbekistan. Discussions in the study show that access to favorable credit and very high risk averseness of agricultural producers created demand for agricultural insurance in the country which is functioning without the state subsidies. However, premium rates currently charged seem to be very high when compared neighboring countries who subsidize agricultural products. Furthermore, lack of coverage during the systemic drought years could be considered another challenge constraining further development of insurance market in Uzbek agriculture. Establishment of index insurance market could be considered as an alternative option to provide coverage during the systemic drought years since price of the index-based products lower than multiple crop insurance products.
    Keywords: Central Asia, transition economy, insurance demand, risk sources, drought, Agricultural and Food Policy, Agricultural Finance, Financial Economics,
    Date: 2014–11
  2. By: Holmes II, Glyen; Lorenzo, Alfredo; Solis, Daniel; Thomas, Michael
    Abstract: Agricultural production is a risky endeavor. Farmers face uncertain yield (revenues) due to climate conditions, pest infestations and other stochastic production factors. Crop insurance offers farmers economic stability under these environments. This study focuses on the impact of climate variability on row crop production in North Florida. The climate in Southeast US is influenced by El Niño Southern Oscillation (ENSO). Recent scientific advances have improved the ability to predict climate fluctuations and provide opportunities to improve the management of climate-associated risks for agriculture. The study case includes farmers growing four crops corn, cotton, peanuts, and soybeans in Jackson County, Florida. We use enterprise budgets along with historical yield harvest data related to ENSO to create whole farm budgets under climate variability. Our study shows that climate variability significantly affects selecting the right crop insurance mixture for farmers.
    Keywords: Climate Variability, Crop Insurance, Optimization Analysis, Environmental Economics and Policy, Risk and Uncertainty,
    Date: 2016–02
  3. By: Barnes, Michelle L. (Federal Reserve Bank of Boston); Bohn, James (Federal Reserve Bank of Boston); Martin, Cynthia (Federal Reserve Bank of Boston)
    Abstract: The 2008–2009 financial crisis was the most serious shock to the U.S. financial system since the Great Depression of the 1930s. A number of large financial institutions failed during the crisis. Many institutions that survived did so only because of extraordinary actions undertaken by company management to maintain solvency, or through the extension of extraordinary support by the federal government and the Federal Reserve System. The impact of the financial crisis on the banking sector has been the subject of extensive research, discussion, and debate. Academic and policy researchers, as well as several government investigations, have examined the measures undertaken by bank managers, banking industry regulators, and governments in response to the crisis (Financial Crisis Inquiry Commission 2011, Stanton 2012). By comparison, relatively few studies have examined the experience of the life insurance sector during the crisis or the response of company managers and insurance regulators during the crisis period. This paper begins to fill that gap.
    JEL: G22 G28
    Date: 2015–12–01
  4. By: An Chen; Elena Vigna
    Abstract: EU Gender Directive ruled out discrimination against gender in charging premium for insurance products. This prohibition prevents the use of the standard actuarial fairness principle to price life insurance products, with an evident negative effect on pricing efficiency. According to current actuarial practice, unisex premiums are calculated with a simple weighting rule of the gender-specific life tables. Up to our knowledge, there seems to be neither unisex fairness principle in the actuarial literature, nor unisex mortality model. This paper is the first attempt to fill this gap. First, we introduce a unisex fairness principle and the corresponding unisex fair premium. Then, we provide a unisex stochastic mortality model for the mortality intensity that is underlying the pricing of a life portfolio of females and males belonging to the same cohort. Finally, we calibrate the unisex mortality model using the unisex fairness principle. We find that the weighting coefficient between the males' and fem ales' own mortalities depends mainly on the quote of portfolio relative to each gender, on the age, and on the type of insurance product. We also investigate the impact of the correlation among the two mortality intensities on the weighting coefficient. The knowledge and the adoption of a proper unisex mortality model should help life insurance companies in many tasks, including pricing, reserving, profit testing, calculation of solvency capital requirements and, ultimately, should result in improved competitiveness.
    Keywords: Actuarial fairness, unisex tariff, stochastic mortality intensity, Gender Directive, life table, doubly stochastic process.
    JEL: C1 C13 C18 C38 J11
    Date: 2015
  5. By: Elisa Guglielminetti (Département d'économie (ECON)); Rafael Lalive (University of Lausanne); Philippe Ruh (University of Zürich); Etienne Wasmer (Département d'économie)
    Abstract: Job search is a spatially oriented activity. Searching farther is costly, and working far away from home entails high costs, affecting job acceptance decisions. We build a simple theoretical framework where job seekers choose how much to search, how far to search, and what lowest wage they accept for a given commute distance. In this setup, unemployment insurance discourages broader job search through reducing the net gain from getting a job. Opposite forces encourage broader search, either through the re-entitlement effect or, under liquidity constraints, to finance costly spatial job search. We use a unique dataset on all workers entering unemployment in Austria between 1995 to 2004 to investigate these forces. We find that newly unemployed workers initially find relatively more frequently jobs in the same workplace as they used to be employed. As the unemployment spell gets longer, they both accept lower wages and progressively enlarge their radius of search, ending up with a job farther away from their previous workplace (but not necessarily farther away from their residence). Unemployment insurance reduces reservation wages at a given accepted commute distance, and encourages search outside the municipality of the previous job. Reducing potential benefit duration affects wages and commuting distance more strongly than changes in the benefit level.
    Keywords: Job search; Job seekers; Unemployment insurance
    Date: 2015–11
  6. By: Biener, Christian; Eling, Martin; Jia, Ruo
    Abstract: A central matter of dispute in the internationalization literature is the existence and shape of a systematic relationship between the degree of internationalization and firm performance (I-P relationship). Considering the global insurance industry, we show that the I-P relationship depends on the industry’s idiosyncrasies and on the geographical scope of internationalization. The life insurance industry’s idiosyncrasies lead to relatively high liability of foreignness that compromise cost efficiency, and relatively low risk reduction benefits of globalization. Therefore, we observe an overall negative impact of globalization on life insurers’ performance. However, the nonlife insurance industry’s idiosyncrasies render this relationship insignificant.
    Keywords: Industry Dependency, Liability of Foreignness, Risk Reduction, Data Envelopment Analysis, Financial Services
    Date: 2016–01
  7. By: Allen L. Schirm; Committee Member Others
    Abstract: Drawing on lessons learned from a proof-of-concept analysis, this report proposes that the Federal Emergency Management Agency develop a microsimulation model-which will use a database of records for individual policyholders and property owners to mimic how policy decisions might affect those individuals—to simulate the effects of different National Flood Insurance Program affordability policy options.
    Keywords: flood, FEMA, insurance, NFIP
    Date: 2015–12–30
  8. By: Yumiharu Nakano
    Abstract: This note presents a kind of the strong law of large numbers for an insurance risk caused by a single catastrophic event rather than by an accumulation of independent and identically distributed risks. We derive this result by a large diversification effect resulting from optimal allocation of the risk to many reinsurers or investors.
    Date: 2016–01
  9. By: Sebastian Dullien
    Abstract: The paper compares different recently discussed proposals for a „fiscal capacity“ for the EuropeanMonetary Union with respect of their ability to stabilize the EMU business cycle and hence tocontribute to a better policy mix in Europe. The term fiscal capacity has sprung up in a number ofofficial documents over the past years, among others the EU Commission’s roadmap for a morecohesive EMU. One interpretation of the „fiscal capacity“ is the introduction of cross-border fiscaltransfers to stabilize the business cycle in EMU member countries. The paper takes a look at recentproposals for such transfer systems. Here, especially, Notre Europe’s Cyclical Shock Insurance (CSI)Scheme (Enderlein et al. 2013, 2013a), Dullien’s (2014) European Basic Unemployment Insurance andCEPS‘ (2014) Catastrophic Unemployment Insurance are compared. It is argued that the CSI carriesthe danger to actually exacerbate cyclical variations in the euro-area. Among the basic and thecatastrophic unemployment insurance, the advantage of the catastrophic unemployment insuranceis that it is far easier to implement and to administer while the basic unemployment insurance hasthe advantage that it offers the widest and strongest stabilization impact among the proposedschemes.
    Keywords: EMU, fiscal capacity, shock absorber, European unemployment insurance
    JEL: F15 E63 J65
    Date: 2015–12
  10. By: Leslie Foster
    Keywords: children's health, insurance coverage, low-income families, Texas
    JEL: I
    Date: 2016–01–25
  11. By: Peter A. Petri (Peterson Institute for International Economics); Michael G. Plummer (Johns Hopkins University)
    Abstract: This Working Paper estimates the effects of the Trans-Pacific Partnership (TPP) using a comprehensive, quantitative trade model, updating results reported in Petri, Plummer, and Zhai (2012) with recent data and information from the agreement. The new estimates suggest that the TPP will increase annual real incomes in the United States by $131 billion, or 0.5 percent of GDP, and annual exports by $357 billion, or 9.1 percent of exports, over baseline projections by 2030, when the agreement is nearly fully implemented. Annual income gains by 2030 will be $492 billion for the world. While the United States will be the largest beneficiary of the TPP in absolute terms, the agreement will generate substantial gains for Japan, Malaysia, and Vietnam as well, and solid benefits for other members. The agreement will raise US wages but is not projected to change US employment levels; it will slightly increase "job churn" (movements of jobs between firms) and impose adjustment costs on some workers.
    Keywords: Trans-Pacific Partnership, Free Trade Agreements
    JEL: F12 F13 F14 F15 F17
    Date: 2016–01
  12. By: Suni, Paavo; Vihriälä, Vesa
    Abstract: Abstract The report focuses on the relative macroeconomic performance since the global financial crisis of six Northern European countries with a special emphasis on Finland. While fiscal and monetary policies have definitely impacted on macroeconomic outcomes in the six countries examined, as a whole they do not appear to be the key driving forces of the differences observed between the countries. The initial vulnerabilities, the nature of shocks and the resilience of the economies appear more important in explaining the differences. In particular, the weakness of growth in Finland can best be explained by a series of exceptional negative shocks in combination with a too weak capacity of the economy to improve its cost competitiveness in the absence of exchange rate flexibility.
    Keywords: Macro economy, fiscal policy, monetary union, competitiveness, Finland
    JEL: F47 E63 E65 P52
    Date: 2016–01–15
  13. By: Dana Petersen; Rachel Miller
    Keywords: Children's health, insurance coverage, low-income families, California
    JEL: I
    Date: 2016–01–25
  14. By: Bloise, Gaetano (Yeshiva University and University of Rome III Author-Name: Polemarchakis, Herakles; Department of Economics, University of Warwick); Vailakis , YiannisAuthor-workplace-Name: University of Glasgow
    Abstract: Sovereign debt is not sustainable even in the presence of uninsurable risks; which extends the result of Bulow and Rogoff (1989). But the argument is not as general. Indeed, examples show that positive borrowing may be enforced even though the sovereign’s natural debt limits, corresponding to the most pessimistic evaluation of future endowment, are finite. Unsustainable sovereign debt in incomplete asset markets requires a strong version of high implied interest rates: the value of the most optimistic evaluation of future endowment is finite.
    Keywords: Sovereign risk ; Ponzi games ; Reputational debt ; Incomplete marketscreation-date: 2016
    JEL: F34 H63

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