nep-ias New Economics Papers
on Insurance Economics
Issue of 2016‒11‒06
eight papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. The Effect of Early ACA Medicaid Expansion on Mental Health By Hoke, Omer; Dunn, Richard
  2. Securities Lending as Wholesale Funding: Evidence from the U.S. Life Insurance Industry By Nathan Foley-Fisher; Borghan Narajabad; Stephane Verani
  3. Church Membership and Social Insurance: Evidence from the Great Mississippi Flood of 1927 By Ager, Philipp; Hansen, Casper Worm; Lønstrup, Lars
  4. Buffer-Stock Saving and Households' Response to Income Shocks By Fella, Giulio; Frache, Serafin; Koeniger, Winfried
  5. Loading Pricing of Catastrophe Bonds and Other Long-Dated, Insurance-Type Contracts By Eckhard Platen; David Taylor
  6. Chances and risks of a European unemployment benefit scheme By Dolls, Mathias
  7. Multidimensional Private Information, Market Structure and Insurance Markets By Hanming Fang; Zenan Wu
  8. Vocational Considerations and Trends in Social Security Disability By Michaud, Amanda M.; Nelson, Jaeger; Wiczer, David

  1. By: Hoke, Omer (University of Connecticut); Dunn, Richard
    Abstract: This article examines the effect of insurance coverage on mental health outcomes by exploiting variation in the timing of Medicaid expansion under the Affordable Care Act (ACA). Using BRFSS data from 2007 to 2013, we compare self-reported mental and physical health between individuals in seven states that enacted more generous Medicaid eligibility guidelines before the federal deadline set in the ACA with individuals in variously defined control groups. Results show that while Medicaid expansion improves mental health, it does not have a statistically significant effect on physical health in the short-run. Furthermore, the benefits of Medicaid expansion on mental health status are evident between the passage of ACA in 2010 and the actual implementation of Medicaid expansion. This suggests that insurance coverage may improve mental health status by relieving the stress associated with being uncovered.
    Date: 2016–06
  2. By: Nathan Foley-Fisher; Borghan Narajabad; Stephane Verani
    Abstract: The existing literature assumes that securities lenders primarily respond to demand from securities borrowers and reinvest their cash collateral in short-term markets. We offer compelling evidence for a supply channel, using new data matching U.S. life insurers' individual bond lending and reinvestment decisions to the universe of securities lending transactions. We show that an insurer's decision to lend a bond is positively correlated with liquidity transformation in its lending program, even after controlling for demand for that bond. We discuss how using securities lending cash collateral as a source of wholesale funding might impair securities markets in times of stress.
    JEL: G11 G22 G23
    Date: 2016–10
  3. By: Ager, Philipp (Department of Business and Economics); Hansen, Casper Worm (Department of Economics); Lønstrup, Lars (Department of Business and Economics)
    Abstract: Religious communities are key providers of social insurance. This paper focuses on the devastating impact of the Great Mississippi Flood of 1927 to investigate how an increase in the demand for social insurance affects church membership. We find a significant increase in church membership in flooded counties. This effect is stronger in counties with severe economic losses and where access to credit was limited. We also document that fundamental denominations gained more members in flooded counties, which is consistent with the theory of club goods emphasizing the efficient provision of mutual insurance in stricter religious communities.
    Keywords: Religion; Informal insurance; Club goods; Natural disasters
    JEL: D70 H40 Z12
    Date: 2016–10–28
  4. By: Fella, Giulio (Queen Mary, University of London); Frache, Serafin (Central Bank of Uruguay); Koeniger, Winfried (University of St. Gallen)
    Abstract: We use the Italian Survey of Household Income and Wealth, a rather unique dataset with a long time dimension of panel information on consumption, income and wealth, to structurally estimate a buffer-stock saving model. We exploit the information contained in the joint dynamics of income, consumption and wealth to quantify the degree of insurance against income risk. The estimated model implies that Italian households can insure between 89 and 95 percent of a transitory and between 7 and 9 percent of a permanent income shock. Compared to existing empirical estimates for the same dataset, our findings suggest that Italian households do not have access to significant insurance beyond self-insurance.
    Keywords: consumption, wealth, income shocks, incomplete markets, insurance
    JEL: D91 E21
    Date: 2016–10
  5. By: Eckhard Platen; David Taylor
    Abstract: Catastrophe risk is a major threat faced by individuals, companies, and entire economies. Catastrophe (CAT) bonds have emerged as a method to offset this risk and a corresponding literature has developed that attempts to provide a market-consistent pricing methodology for these and other long-dated, insurance-type contracts. This paper aims to unify and generalize several of the widely-used pricing approaches for long-dated contracts with a focus on stylized CAT bonds and market-consistent valuation. It proposes a loading pricing concept that combines the theoretically possible minimal price of a contract with its formally obtained risk neutral price, without creating economically meaningful arbitrage. A loading degree controls how much influence the formally obtained risk neutral price has on the market price. A key finding is that this loading degree has to be constant for a minimally fluctuating contract, and is an important, measurable characteristic for prices of long-dated contracts. Loading pricing allows long-dated, insurance-type contracts to be priced less expensively and with higher return on investment than under classical pricing approaches. Loading pricing enables insurance companies to accumulate systematically reserves needed to manage its risk of ruin in a market consistent manner.
    Date: 2016–10
  6. By: Dolls, Mathias
    Abstract: The Eurozone debt crisis has revived the debate about deeper fiscal integration in the European Economic and Monetary Union (EMU). Some observers argue that fiscal risk sharing is necessary to make the Eurozone more resilient to macroeconomic shocks and to avoid its break-up. However, the main concerns relate to the issues of permanent transfers across Member States and moral hazard. The 2012 Four Presidents' Report suggested that fiscal integration could include a common unemployment insurance system. A White Paper outlining further steps necessary to complete EMU is to be released by the European Commission in the spring of 2017. This ZEW policy brief presents new research findings on the stabilizing and redistributive effects of a common unemployment insurance scheme for the euro area (henceforth EMU-UI).1 It provides insights regarding its potential added value and discusses moral hazard issues.
    Date: 2016
  7. By: Hanming Fang; Zenan Wu
    Abstract: A large empirical literature found that the correlation between insurance purchase and ex post realization of risk is often statistically insignificant or negative. This is inconsistent with the predictions from the classic models of insurance a la Akerlof (1970), Pauly (1974) and Rothschild and Stiglitz (1976) where consumers have one-dimensional heterogeneity in their risk types. It is suggested that selection based on multidimensional private information, e.g., risk and risk preference types, may be able to explain the empirical findings. In this paper, we systematically investigate whether selection based on multidimensional private information in risk and risk preferences, can, under different market structures, result in a negative correlation in equilibrium between insurance coverage and ex post realization of risk. We show that if the insurance market is perfectly competitive, selection based on multidimensional private information does not result in negative correlation property in equilibrium, unless there is a sufficiently high loading factor. If the insurance market is monopolistic or imperfectly competitive, however, we show that it is possible to generate negative correlation property in equilibrium when risk and risk preference types are sufficiently negative dependent, a notion we formalize using the concept of copula. We also clarify the connections between some of the important concepts such as adverse/advantageous selection and positive/negative correlation property.
    JEL: D82 G22 H11
    Date: 2016–10
  8. By: Michaud, Amanda M. (Indiana University); Nelson, Jaeger (Indiana University); Wiczer, David (Federal Reserve Bank of St. Louis)
    Abstract: Along with health, Social Security Disability Insurance (SSDI) evaluates work-limiting disability by considering vocational factors including age, education, and past work experience. As the number of SSDI applicants and awards has increased, these vocational criteria are increasingly important to acceptances and denials. A unique state-level dataset allows us to estimate how these factors relate to the SSDI award process. These estimates are used to asses how changes to the demographic and occupational composition have contributed to awards trends. In our results, the prevalence of workers in their 50s are especially important. Further, increasing educational attainment lowers applications and vocational awards.
    Keywords: Disability Insurance; Vocational Criteria; Demographic Decomposition
    JEL: E62 I13
    Date: 2016–10–16

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