nep-ias New Economics Papers
on Insurance Economics
Issue of 2017‒03‒12
eleven papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Evaluation of total risk exposure and insurance premiums in the maritime industry By Knapp, S.; Heij, C.
  2. Fiscal Unions Redux By Patrick J. Kehoe
  3. Projecting Hospitals’ Profit Margins Under Several Illustrative Scenarios: Working Paper 2016-04 By Tamara Hayford; Lyle Nelson; Alexia Diorio
  4. Who Pays More: Public, Private, Both or None? The Effects of Health Insurance Schemes and Health Reforms on Out-of-Pocket and Catastrophic Health Expenditures in Turkey By Eleftherios Giovanis; Oznur Ozdamar
  5. Risk-sharing benefits and the capital structure of insurance companies By Degryse, Hans; Smedts, Kristien; Van Hulle, Cynthia
  6. Asymmetries in earnings, employment and wage risk in Great Britain By Konstantinos Angelopoulos; Spyridon Lazarakis; James Malley
  7. A stochastic forward-looking model to assess the profitability and solvency of European insurers By Berdin, Elia; Kok, Christoffer; Pancaro, Cosimo
  8. Out of Pocket Health Expenditures in Turkey in the Aftermath of the Reforms: Impact of Co-payments on Expenditures and Use of Health Services By Burcay Erus
  9. State Health Insurance Mandates and Labor Market Outcomes: New Evidence on Old Questions By Antwi, Yaa Akosa; Maclean, J. Catherine
  10. Optimal Taxation with Private Insurance By Yongsung Chang; Yena Park
  11. Medicaid, Family Spending, and the Financial Implications of Crowd-Out By Marcus Dillender

  1. By: Knapp, S.; Heij, C.
    Abstract: This study provides an empirical evaluation of maritime risk exposure expressed as the monetary value at risk (MVR), which incorporates life of crew and passengers, vessel value of hull and machinery, carried cargo value, third party liabilities, and potential external damages like pollution. MVR is based on individual safety quality data of about 130,000 vessels, on insurable values related to various potential damages, and on proxies for fractions of values lost at incidents. MVR provides a tool to enhance strategic planning of maritime administrations and insurance providers, which is illustrated by a high level comparison of annual risk exposure with insurance premiums for 2010 to 2014. The analysis reveals a global annual insurable value of 30.6 trillion USD with associated annual MVR of 38.8 billion USD for very serious and serious incidents. Although oil tankers show the highest risk exposure (1.75 million USD per tanker per year), safety qualities are found to be best for this ship type (1.4% annual incident risk) and worst for container vessels (2.8%). Annual growth rates in total risk exposure are mostly positive with highest value for dry bulk carriers (27.8%), whereas risk exposure tends to decline for pollution of oil tankers (-2.0%) and passenger vessels (-11.3%), and for loss of life of oil tankers (-1.9%) and dry bulk carriers (-1.4%) but not of passenger vessels (6.9%). A comparison across administrative dimensions reveals that most risk exposure lies with old open registries and with beneficial owners and DoC companies located in high income countries. Comparison with global insurance premiums suggests reasonably adequate coverage of maritime risks (excluding cargo). Our analysis indicates under-insurance of risk by around 5%, corresponding to about 1 billion USD per year, with some uncertainties remaining for the actual loss fractions of the various involved damages.
    Keywords: shipping incident, monetary value at risk, risk exposure, insurance, pollution, loss of life
    Date: 2016–01–01
  2. By: Patrick J. Kehoe (; Centre for Macroeconomics (CFM))
    Abstract: Before the advent of sophisticated international financial markets, a widely accepted belief was that within a monetary union, a union-wide authority orchestrating fiscal transfers between countries is necessary to provide adequate insurance against country-specific economic fluctuations. A natural question is then: Do sophisticated international financial markets obviate the need for such an active union-wide authority? We argue that they do. Specifically, we show that in a benchmark economy with no international financial markets, an activist union-wide authority is necessary to achieve desirable outcomes. With sophisticated financial markets, however, such an authority is unnecessary if its only goal is to provide cross-country insurance. Since restricting the set of policy instruments available to member countries does not create a fiscal externality across them, this result holds in a wide variety of settings. Finally, we establish that an activist union-wide authority concerned just with providing insurance across member countries is optimal only when individual countries are either unable or unwilling to pursue desirable policies.
    Keywords: Cross-country Externalities, Cross-country Insurance, Cross-country Transfers, Fiscal Externalities, International Financial Markets, International Transfers, Optimal Currency Area
    JEL: E60 E61 F33 F35 F38 F42 G15 G28 G33
    Date: 2017–02
  3. By: Tamara Hayford; Lyle Nelson; Alexia Diorio
    Abstract: Changes stemming largely from implementation of the Affordable Care Act (ACA) could affect hospitals’ finances significantly. Although the ACA reduces Medicare’s payment updates for hospitals, it also expands insurance coverage, which should reduce hospitals’ costs for uncompensated care. To examine the effects of those and other provisions of federal law, this paper calculates hospitals’ profit margins and the share of hospitals that might lose money in 2025 under several illustrative scenarios. The analysis focuses on about 3,000 hospitals that provide acute care and are subject to Medicare
    JEL: I11 I18
    Date: 2016–09–08
  4. By: Eleftherios Giovanis (University of Verona); Oznur Ozdamar
    Abstract: This study explores the determinants and characteristics of the out-of-pocket to capacity to pay and catastrophic health expenditures in Turkey using a detailed micro-level survey, the Household Budget Survey during the period 2002-2011. The results show that those who have public health insurance are less likely to face out-of-pocket to capacity to pay and catastrophic health expenditures, than those with private or without health insurance. In addition, the study explores the expansion of the health reform of 2003, where in 2008 the Green Card (Yesil Kart) holders are entitled, without fee, to the same services as those with public health insurance such as Emekli Sandigi, BAG-KUR, SSK. The analysis employs a differences-in-differences approach using a pseudo-panel based on propensity score matching. The results support that the difference of pocket health expenditures between the public health insurers and green card holders has been reduced. Furthermore, those who are located in rural areas are compared with those residing in urban areas, as the health reform in 2008 included expansion and improvement on the emergency services and infrastructure in rural areas.
    Date: 2016–10–25
  5. By: Degryse, Hans; Smedts, Kristien; Van Hulle, Cynthia
    Abstract: Providing risk-sharing benefits to risk-averse policy holders is a primary function of insurance companies. We model that policy holders are paying a fee over the present value of indemnifications (i.e., technical provisions) to enjoy these risk-sharing benefits. This fee implies that a capital structure largely consisting of technical provisions is optimal for insurance firms, making the traditional Modigliani-Miller logic inappropriate for them. To support the issuance of technical provisions with socially desirable properties, insurance firms choose a solvency risk target vis-à-vis policy holders and maintain a minimal surplus consistent with this risk choice to absorb losses. We show that the Modigliani-Miller logic applies to the composition of this loss-absorption capacity. This explains why insurance companies may use, next to equity and technical provisions, financial debt in supporting their activities.
    JEL: G22 G32
    Date: 2017–02
  6. By: Konstantinos Angelopoulos; Spyridon Lazarakis; James Malley
    Abstract: This paper examines the relationship between idiosyncratic earn- ings, employment and wage risk and fluctuations in aggregate labour market quantities for Great Britain. We use data from the British Household Panel Survey (BHPS) for 1991-2008 and from the BHPS sub-sample of Understanding Society for 2010-2014. We measure idio- syncratic risk by the relevant moments of the distribution of earnings, employment and wage shocks across individuals. Our main finding is that each of these measures of idiosyncratic labour income risk re- spond asymmetrically to fluctuations in the labour market aggregates. Furthermore, we find evidence of insurance, both within the household and in the form of public insurance.
    Keywords: Idiosyncratic income risk, employment, social insurance policy
    JEL: D31 E24 J31
    Date: 2017–02
  7. By: Berdin, Elia; Kok, Christoffer; Pancaro, Cosimo
    Abstract: In this paper, we develop an analytical framework for conducting forward-looking assessments of profitability and solvency of the main euro area insurance sectors. We model the balance sheet of an insurance company encompassing both life and non-life business and we calibrate it using country level data to make it representative of the major euro area insurance markets. Then, we project this representative balance sheet forward under stochastic capital markets, stochastic mortality developments and stochastic claims. The model highlights the potential threats to insurers solvency and profitability stemming from a sustained period of low interest rates particularly in those markets which are largely exposed to reinvestment risks due to the relatively high guarantees and generous profit participation schemes. The model also proves how the resilience of insurers to adverse financial developments heavily depends on the diversification of their business mix. Finally, the model identifies potential negative spillovers between life and non-life business through the redistribution of capital within groups. JEL Classification: G20, G22, G23
    Keywords: Financial Stability, Insurance, Interest Rate Risk, Stress Test
    Date: 2017–02
  8. By: Burcay Erus (Bogaziçi University)
    Abstract: In 2002 Turkey started to implement reforms in health care aiming to ease access and increase efficiency. Reforms increased insurance coverage and resulted in higher number of outpatient and inpatient treatments at both public and private hospitals. To reign in consequent increase in health expenditures, a series of co-payments were instituted. Along with that primary care services were reformed through a family-medicine system that provided free access. The aim was to channel patients to primary care and hence cut on costs of secondary care. This work aims to measure the impact of these two measures, introduction of co-payments at secondary care and ease of access to free primary care, on out-of-pocket expenditures and access/use of healthcare services. We find that while contributory payments resulted in higher OOP health expenditures, especially for lower income households, the impact was small and did not hinder access to healthcare services. Indeed, possibly due to easier access to primary care, inability to see a doctor became less prevalent. Adverse effect of the contributory payments have been limited and have largely been countered by the provision of a easily available primary care system.
    Date: 2016–06–12
  9. By: Antwi, Yaa Akosa (The Johns Hopkins Carey Business School); Maclean, J. Catherine (Temple University)
    Abstract: In this study we re-visit the relationship between private health insurance mandates, access to employer-sponsored health insurance, and labor market outcomes. Specifically, we model employer-sponsored health insurance access and labor market outcomes across the lifecycle as a function of the number of high cost mandates in place at labor market entrance. Our analysis draws on a long panel of workers from the National Longitudinal Survey of Youth 1979 and exploits variation in five high cost state mandates between 1972 and 1989. Four principal findings emerge from our analysis. First, we find no strong evidence that high cost state health insurance mandates discourage employers from offering insurance to employees. Second, employers adjust both wages and labor demand to offset mandate costs, suggesting that employees place some value on the mandated benefits. Third, the effects are persistent, but not permanent. Fourth, the effects are heterogeneous across worker types. These findings have implications for thinking through the full labor market effects of health insurance expansions.
    Keywords: mandated benefits, labor costs, health insurance
    JEL: H2 I13 J3
    Date: 2017–02
  10. By: Yongsung Chang (University of Rochester and Yonsei University); Yena Park (University of Rochester)
    Date: 2017–03
  11. By: Marcus Dillender (W.E. Upjohn Institute for Employment Research)
    Keywords: Medicaid eligibility, crowd-out, family spending
    JEL: D12 I13

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