nep-ias New Economics Papers
on Insurance Economics
Issue of 2016‒03‒29
thirteen papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Rich, Poor, Singles, and Couples. Who Receives Medicaid in Old Age and Why? By Margherita Borella; Mariacristina De Nardi; Eric French
  2. Solvency II ante portas: Nutzen und Risiken der neuen Versicherungsregulierung By Gründl, Helmut
  3. The effect of health insurance on workers' compensation filing: Evidence from the Affordable Care Act's age-based threshold for dependent coverage By Marcus Dillender
  4. Insurance activities and systemic risk By Berdin, Elia; Sottocornola, Matteo
  5. The Effect of Disability Insurance Payments on Beneficiaries’ Earnings By Alexander Gelber; Timothy Moore; Alexander Strand
  6. Online Appendix to "Market Inefficiency, Insurance Mandate and Welfare: U.S. Health Care Reform 2010 By Juergen Jung; Chung Tran
  7. Interbank funding as insurance mechanism for (persistent) liquidity shocks By Bluhm, Marcel
  8. Social Security and Retirement Programs Around the World: The Capacity to Work at Older Ages – Introduction and Summary By Courtney Coile; Kevin S. Milligan; David A. Wise
  9. Does it really make a difference? Health care utilization with two high deductible health care plans By Stefan Pichler; Jan Ruffner
  10. Behavioral foundations of the substitutability between insurance and self-insurance: An experimental study By François Pannequin; Anne Corcos; Claude Montmarquette
  11. Lapse risk in life insurance: correlation and contagion effects among policyholders' behaviors By Flavia Barsotti; Xavier Milhaud; Yahia Salhi
  12. The role of commercial insurance in post-disaster recovery: Quantitative evidence from the 2011 Christchurch earthquake By Poontirakul, Porntida; Brown, Charlotte; Noy, Ilan; Seville, Erica; Vargo, John
  13. States' Decisions to Adopt Unemployment Compensation Provisions of the American Recovery and Reinvestment Act By Annalisa Mastri; Wayne Vroman; Karen Needels; Walter Nicholson

  1. By: Margherita Borella; Mariacristina De Nardi; Eric French
    Abstract: We use the Health and Retirement Survey (HRS) data set to study who receives Medicaid in old age and why. First, we conduct a descriptive analysis of Medicaid recipiency along a number of important observables. This analysis shows that, while fewer people with high permanent income receive Medicaid, a significant fraction of high permanent income people receive Medicaid at very old ages. It also shows that more single people receive Medicaid than people in couples, that people who just lost their spouse rapidly become very similar in their Medicaid recipiency and other important observable characteristics to people who have been single for much longer, and that bad health commoves with Medicaid recipiency. Finally, this analysis shows even people having long-term care insurance end up on Medicaid, but that the fraction of people in this group that is on Medicaid is one-third that of the entire population of the elderly. Second, multivariate regression analysis allows us to disentangle the effects of many observables on Medicaid recipiency while conditioning for others and reveals several interesting patterns. First, permanent income and other variables capturing economic background have a major role in determining individuals’ Medicaid coverage and explain much of the observed differences in Medicaid recipiency among singles, couples, and people who recently lost their spouse. Second, impairments in the activities of daily living and residency in a nursing home have a large effect on the probability of being on Medicaid, with the effect of nursing home residency being relatively large for those in the middle and upper income groups. Lastly, having long-term care insurance has no independent effect on the probability of ending up on Medicaid.
    JEL: D1 D31 E21 H2 H31 H4 H51
    Date: 2016–01
  2. By: Gründl, Helmut
    Abstract: Kapitalanleger wie Versicherungsnehmer werden oft konfrontiert mit komplexen Produkten und nicht durchschaubaren Unternehmensstrukturen der Anbieter. Gleichzeitig stellt die mögliche Nichterfüllung ihrer Ansprüche häufig ein existenzielles Risiko dar. Deshalb ist es Ziel der Finanzregulierung, Rahmenbedingungen im Finanzdienstleistungsbereich zu schaffen, die wirtschaftliche Abläufe gewährleisten und gleichzeitig den Konsumenten schützen. Dem Nutzen der Regulierung stehen aber auch Risiken gegenüber, die im diesem Artikel am Beispiel der Versicherungsregulierung dargelegt werden.
    Abstract: Investors and insurance policyholders are often confronted with complex products and providers' opaque organisational structures. At the same time, the possibility that their claims will not be honoured often poses an existential risk. Financial regulation therefore aims at putting in place a financial services framework that will safeguard market processes whilst also protecting consumers. However, benefits of regulation are accompanied by certain risks, as can be exemplified with the case of insurance regulation.
    Keywords: Regulierung,Versicherungen
    Date: 2015
  3. By: Marcus Dillender (W.E. Upjohn Institute for Employment Research)
    Keywords: Workers' compensation, Moral hazard, Health insurance, Affordable Care Act
    JEL: I13 J32 J38
  4. By: Berdin, Elia; Sottocornola, Matteo
    Abstract: This paper investigates systemic risk in the insurance industry. We first analyze the systemic contribution of the insurance industry vis-à-vis other industries by applying 3 measures, namely the linear Granger causality test, conditional value at risk and marginal expected shortfall, on 3 groups, namely banks, insurers and non-financial companies listed in Europe over the last 14 years. We then analyze the determinants of the systemic risk contribution within the insurance industry by using balance sheet level data in a broader sample. Our evidence suggests that i) the insurance industry shows a persistent systemic relevance over time and plays a subordinate role in causing systemic risk compared to banks, and that ii) within the industry, those insurers which engage more in non-insurance-related activities tend to pose more systemic risk. In addition, we are among the first to provide empirical evidence on the role of diversification as potential determinant of systemic risk in the insurance industry. Finally, we confirm that size is also a significant driver of systemic risk, whereas price-to-book ratio and leverage display counterintuitive results.
    Keywords: systemic risk,insurance activities,systemically important financial institutions
    JEL: G01 G22 G28 G32
    Date: 2015
  5. By: Alexander Gelber; Timothy Moore; Alexander Strand
    Abstract: A crucial issue in studying social insurance programs is whether they affect work decisions through income or substitution effects. We examine this in the context of U.S. Social Security Disability Insurance (DI), one of the largest social insurance programs in the U.S. The formula linking DI payments to past earnings has discontinuous changes in the marginal replacement rate that allow us to use a regression kink design to estimate the effect of payment size on earnings. Using Social Security Administration data on all new DI beneficiaries from 2001 to 2007, we document a robust income effect of DI payments on earnings. Our preferred estimate is that an increase in DI payments of one dollar causes an average decrease in beneficiaries’ earnings of twenty cents. This suggests that the income effect represents an important factor in driving DI-induced reductions in earnings.
    JEL: H31 I18 J14 J22
    Date: 2016–01
  6. By: Juergen Jung (Towson University); Chung Tran (Australian National University)
    Abstract: Online appendix for the Review of Economic Dynamics article
    Date: 2016
  7. By: Bluhm, Marcel
    Abstract: The interbank market is important for the efficient functioning of the financial system, transmission of monetary policy and therefore ultimately the real economy. In particular, it facilitates banks' liquidity management. This paper aims at extending the literature which views interbank markets as mutual liquidity insurance mechanism by taking into account persistence of liquidity shocks. Following a theory of long-term interbank funding a financial system which is modeled as a micro-founded agent based complex network interacting with a real economic sector is developed. The model features interbank funding as an over-the-counter phenomenon and realistically replicates financial system phenomena of network formation, monetary policy transmission and endogenous money creation. The framework is used to carry out an optimal policy analysis in which the policymaker maximizes real activity via choosing the optimal interest rate in a trade-off between loan supply and financial fragility. It is shown that the interbank market renders the financial system more efficient relative to a setting without mutual insurance against persistent liquidity shocks and therefore plays a crucial role for welfare.
    Keywords: financial fragility,interbank market,liquidity,maturity,network model
    JEL: E44 E51 G01 G21 G28
    Date: 2015
  8. By: Courtney Coile; Kevin S. Milligan; David A. Wise
    Abstract: This is the introduction and summary to the seventh phase of an ongoing project on Social Security Programs and Retirement Around the World. The project compares the experiences of a dozen developed countries and uses differences in their retirement program provisions to explore the effect of SS on retirement and related questions. The first three phases of this project document that: 1) incentives for retirement from SS are strongly correlated with labor force participation rates across countries; 2) within countries, workers with stronger incentives to delay retirement are more likely to do so; and 3) changes to SS could have substantial effects on labor force participation and government finances. The fourth volume explores whether higher employment among older persons might increase youth unemployment and finds no link between the two. The fifth and sixth volumes focus on the disability insurance (DI) program, finding that changes in DI participation are more closely linked to DI reforms than to changes in health and that reducing access to DI would raise labor supply. This seventh phase of the project explores whether older people are healthy enough to work longer. We use two main methods to estimate the health capacity to work, asking how much older individuals today could work if they worked as much as those with the same mortality rate in the past or as younger individuals in similar health. Both methods suggest there is significant additional health capacity to work at older ages.
    JEL: H31 H55 I19 J14 J26
    Date: 2016–01
  9. By: Stefan Pichler (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Jan Ruffner (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: Deductibles are commonly used to tame increasing health care costs. Numerous studies find that higher deductibles reduce health care utilization. In this paper we compare utilization in Switzerland between two health care plans with deductibles of 1,500 CHF and 2,500 CHF (1CHF =1$) per calendar year. While there is a minimum deductible level in Switzerland, individuals are free to increase their deductible and thereby reduce their insurance premium. In order to distinguish between selection and moral hazard we use regional variation in premiums as an instrument. Moreover, we take advantage of a policy change in 2005 that introduced the higher deductible for the first time. The results show that selection leads to considerable differences in utilization between the two groups, while we find no behavioral differences across both groups. If anything health care expenditures are higher for male individuals with the higher deductible, while for females there are no differences between the two deductible levels.
    Keywords: Moral hazard, Instrumental variables, Health insurance, Deductible, Advantageous Selection
    JEL: C23 C26 I12
    Date: 2016–03
  10. By: François Pannequin; Anne Corcos; Claude Montmarquette
    Abstract: In this experimental study, the analysis on two levels of substitution between insurance and self-insurance shows that a higher unit price results in a quantity-based substitution and a between-tools substitution while the only effect of a higher fixed cost is to reduce the insurance market. The optimality of the coverage demands associated with the equalization of marginal returns is not achieved. Instead, individuals chose a stable global amount of coverage. These behavioral insights have a potential impact on public policies related to insurance and self-insurance.
    Keywords: insurance, self-insurance, substitutability, lab experiment, risk-aversion,
    Date: 2016–03–14
  11. By: Flavia Barsotti (Risk Methodologies, UniCredit Spa); Xavier Milhaud (SAF - Laboratoire Science Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1); Yahia Salhi (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1)
    Abstract: The present paper extends the existing literature on lapse risk by presenting a flexible way to model the lapse decisions in a life insurance portfolio. Correlation and contagion effects among policyholders are embedded in the modeling and risk margins estimates can be easily obtained under both stable regimes and stress scenarios. The proposed approach integrates the effects of policyholders' behaviors through the definition of a mathematical framework where the lapse intensity follows a dynamic contagion process: an external component, the shot-noise intensity, is added to the Hawkes-based one. Contrary to previous works, our shot-noise intensity is not constant and the resulting intensity process is not Markovian. We study the influence of the interest rates dynamics on policyholders' behaviors and the resulting impact on lapse risk margins. Closed-form expressions for the moments of the lapse intensity are provided, showing how the lapse risk is affected by massive copycat behaviors. A sensitivity analysis studies the lapse risk metrics as function of the model's parameters, while a simulation study compares our results with the ones obtained using standard practices. The numerical outputs highlight a potential strong misestimation of lapses under extreme scenarios with classical stress testing methodologies.
    Keywords: Contagion,Correlation,Stress Tests,Lapse Risk,Dynamic Contagion Process,Hawkes Process,Policyhoders' Behavior,Surrender
    Date: 2016–03–04
  12. By: Poontirakul, Porntida; Brown, Charlotte; Noy, Ilan; Seville, Erica; Vargo, John
    Abstract: We examine the role of business interruption insurance in business recovery following the Christchurch earthquake in 2011 in the short- and medium-term. In the short-term analysis, we ask whether insurance increases the likelihood of business survival in the aftermath of a disaster. We find only weak evidence that those firms that had incurred damage, but were covered by business interruption insurance, had higher likelihood of survival post-quake compared with those firms that did not have insurance. This absence of evidence may reflect the high degree of uncertainty in the months following the 2011 earthquake and the multiplicity of severe aftershocks. For the medium-term, our results show a more explicit role for insurance in the aftermath of a disaster. Firms with business interruption insurance have a higher probability of increasing productivity and improved performance following a catastrophe. Furthermore, our results show that those organisations that receive prompt and full payments of their claims have a better recovery, in terms of profitability and a subjective ‘”better off” measure’ than those that had protracted or inadequate claim payments (less than 80% of the claim paid within 2.5 years). Interestingly, the latter group does worse than those organisations that had damage but no insurance coverage. This analysis strongly indicates the importance not only of good insurance coverage, but of an insurance system that also delivers prompt claim payments. As a first paper attempting to empirically identify a causal effect of insurance on business recovery, we also emphasize some caveats to our analysis.
    Keywords: Earthquakes, Disaster impact, Christchurch (New Zealand), Economic impact, Commercial insurance, Business interruption insurance,
    Date: 2016
  13. By: Annalisa Mastri; Wayne Vroman; Karen Needels; Walter Nicholson
    Keywords: unemployment insurance, alternative base period, modernization incentives
    JEL: J
    Date: 2016–03–02

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