nep-ias New Economics Papers
on Insurance Economics
Issue of 2017‒06‒11
fourteen papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Did the Affordable Care Act Young Adult Provision Affect Labor Market Outcomes? Analysis Using Tax Data By Bradley Heim; Ithai Lurie; Kosali Simon
  2. The Spike at Benefit Exhaustion in the Finnish Labor Market By Kyyrä, Tomi; Pesola, Hanna; Verho, Jouko Kullervo
  3. Exit, Voice or Loyalty? An Investigation into Mandated Portability of Front-Loaded Private Health Plans By Juan Pablo Atal; Hanming Fang; Martin Karlsson; Nicolas R. Ziebarth
  4. Managing disaster-related contingent liabilities By Catherine Gamper; Benedikt Signer; Luis Alton; Murray Petrie
  5. Corporate governance of insurance firms after Sovency II By Siri, Michele
  6. Disability Benefits, Consumption Insurance, and Household Labor Supply By David Autor; Andreas Ravndal Kostol; Magne Mogstad; Bradley Setzler
  7. Scenario-based capital requirements for the interest rate risk of insurance companies By Schlütter, Sebastian
  8. Differences Among Older Adults in the Types of Dental Services Used in the United States By Richard J. Manski; Jody Schimmel Hyde; Haiyan Chen; John F. Moeller
  9. Elements of an Index-based Margin Insurance. An Application to Wheat Production in Austria By Karin Heinschink; Franz Sinabell; Thomas Url
  10. Exploring the nexus between certainty in injury compensation and treatment selection By Bertoli, P.; Grembi, V.;
  11. Charting the next steps for the EU financial supervisory architecture By Nicolas Véron
  12. Estimating the Effects of Potential Benefit Duration without Variation in the Maximum Duration of Unemployment Benefits By Kyyrä, Tomi; Pesola, Hanna
  13. Public in-kind relief and private self-insurance By Goeschl, Timo; Managi, Shunsuke
  14. Simple Encouragement Emails Increased Take-Up of Reemployment Program (Infographic) By Matthew Darling; Christopher O’Leary; Irma Perez-Johnson; Jaclyn Lefkowitz; Ken Kline; Ben Damerow; Randall Eberts; Samia Amin; Greg Chojnacki

  1. By: Bradley Heim; Ithai Lurie; Kosali Simon
    Abstract: We study the impact of the Affordable Care Act (ACA) young adult dependent coverage requirement on labor market-related outcomes, including measures of employment status, job characteristics, and post-secondary education, using a data set of U.S. tax records spanning 2008-2013. We find that the ACA provision did not result in substantial changes in labor market outcomes. Our results show that employment and self-employment were not statistically significantly affected. While we find some evidence of increased likelihood of young adults earning lower wages, not receiving fringe benefits, enrolling as full-time or graduate students, and young men being self-employed, the magnitudes imply extremely small impacts on these outcomes in absolute terms and when compared to other estimates in the literature. These results are consistent with health insurance being less salient to young adults when making labor market decisions compared to other populations.
    JEL: I13 J01
    Date: 2017–06
  2. By: Kyyrä, Tomi (VATT, Helsinki); Pesola, Hanna (VATT, Helsinki); Verho, Jouko Kullervo (VATT, Helsinki)
    Abstract: Many studies have found that the exit rate from unemployment increases in the vicinity of the exhaus-tion day of unemployment insurance benefits. The extent to which this "spike" is driven by job search behavior is important for assessing the distortionary effect of unemployment insurance. Card, Chetty and Weber (American Economic Review 2007; 97: 113-118) find a large spike in the exit rate from regis-tered unemployment but only a very small spike in the job finding rate in Austria. We replicate their analysis using matched register data for Finland. We find a large spike also in the job finding rate at the time of benefit exhaustion, even though it is clearly smaller than the spike in the exit rate from unem-ployment benefits. In addition, we demonstrate difficulties in measuring the time to benefit exhaus-tion when the benefit entitlement can elapse at a reduced rate during activation measures or part-time working. Unless the remaining benefit entitlement is directly observed in the data, the resulting measurement error can lead to downward biased estimates of the spikes at benefit exhaustion.
    Keywords: unemployment insurance, layoffs, hazard rates
    JEL: C41 J64 J65
    Date: 2017–05
  3. By: Juan Pablo Atal; Hanming Fang; Martin Karlsson; Nicolas R. Ziebarth
    Abstract: We study theoretically and empirically how consumers in an individual private long-term health insurance market with front-loaded contracts respond to newly mandated portability requirements of their old-age provisions. To foster competition, effective 2009, German legislature made the portability of standardized old-age provisions mandatory. Our theoretical model predicts that the portability reform will increase internal plan switching. However, under plausible assumptions, it will not increase external insurer switching. Moreover, the portability reform will enable unhealthier enrollees to reoptimize their plans. We find confirmatory evidence for the theoretical predictions using claims panel data from a big private insurer.
    JEL: G22 I11 I18
    Date: 2017–06
  4. By: Catherine Gamper (OECD); Benedikt Signer (The World Bank); Luis Alton (The World Bank); Murray Petrie
    Abstract: Natural disasters have caused, and continue to cause, a significant amount of economic costs. The costs of disasters are often, and to a large extent, shouldered by governments, especially in economies where private insurance markets are not well developed. Governments are asked to provide financing for explicit commitments made prior to a disaster, and are often under pressure to make payments for which no such commitments were made earlier. Ex-post costs to governments take the form of contingent liabilities within national budgeting and government balance sheet frameworks. Disasters can thereby cause both downside risks to government revenue as well as to expenditure. There is little evidence, and hence limited policy advice, on how disaster-related contingent liabilities are managed by governments. This paper sets out to clarify the concept of contingent liabilities and the channels through which they can impact government balance sheets, including fiscal risks. It provides a framework for identifying and quantifying disaster-related contingent liabilities with a view to inform country case studies for comparative policy analysis.
    Keywords: contingent liabilities, disaster risk financing, Disasters, government disaster assistance
    JEL: H12 H3 H54 H63 H68 H7 H81 H84
    Date: 2017–06–07
  5. By: Siri, Michele
    Abstract: Under Solvency II, corporate governance requirements are a complementary, but nonetheless essential, element to build a sound regulatory framework for insurance undertakings, also to address risks not specifically mitigated by the sole solvency capital requirements. After recalling the provisions of the second pillar concerning the system of governance, the paper is devoted to highlight the emerging regulatory trends in the corporate governance of insurance firms. Among others, it signals the exceptional extension of the duties and responsibilities assigned to the Board of directors, far beyond the traditional role of both monitoring the chief executive officer, and assessing the overall direction and strategy of the business. However, a better risk governance is not necessarily built on narrow rule-based approaches to corporate governance.
    Keywords: Insurance,Corporate Governance,Board of Directors,Culture,Risk Management,Internal Controls,Principle of Proportionality,Regulation,EIOPA,Solvency,Guidelines
    Date: 2017
  6. By: David Autor; Andreas Ravndal Kostol; Magne Mogstad; Bradley Setzler
    Abstract: While a mature literature finds that Disability Insurance (DI) receipt discourages work, the welfare implications of these findings depend on two rarely studied economic quantities: the full cost of DI allowances to taxpayers, summing over DI transfer payments, benefit substitution to or from other transfer programs, and induced changes in tax receipts; and the value that individuals and families place on receiving benefits in the event of disability. We comprehensively assess these missing margins in the context of Norway's DI system, drawing on two strengths of the Norwegian environment. First, Norwegian register data allow us to characterize the household impacts and fiscal costs of disability receipt by linking employment, taxation, benefits receipt, and assets at the person and household level. Second, random assignment of DI applicants to Norwegian judges who differ systematically in their leniency allows us to recover the causal effects of DI allowance on individuals at the margin of program entry. Accounting for the total effect of DI allowances on both household labor supply and net payments across all public transfer programs substantially alters our picture of the consumption benefits and fiscal costs of disability receipt. While DI allowance causes a significant increase in household income and consumption on average, it has little impact on income or consumption of married applicants because spousal earnings responses (via the added worker effect) and benefit substitution entirely offset DI benefit payments among those who are allowed relative to those who are denied. To develop the welfare implications of these findings, we estimate a dynamic model of household behavior that translates employment, reapplication and savings decisions into revealed preferences for leisure and consumption. We find that household valuation of receipt of DI benefits is considerably greater for single and unmarried individuals than for married couples because spousal labor supply substantially buffers household income and consumption in the event of DI denial.
    JEL: H53 H55 I38 J22
    Date: 2017–06
  7. By: Schlütter, Sebastian
    Abstract: The Solvency II standard formula measures interest rate risk based on two stress scenarios which are supposed to reflect the 1-in-200 year event over a 12-month time horizon. The calibration of these scenarios appears much too optimistic when comparing them against historical yield curve movements. This article demonstrates that interest rate risk is measured more accurately when using a (vector) autoregressive process together with a GARCH process for the residuals. In line with the concept of a pragmatic standard formula, the calculation of the Value-at-Risk can be boiled down to 4 scenarios, which are elicited with a Principal Component Analysis (PCA), at the cost of a relatively small measurement error.
    Keywords: Interest Rate Risk,Principal Component Analysis,Capital Requirements,Solvency II
    JEL: G17 G22 G32 G38
    Date: 2017
  8. By: Richard J. Manski; Jody Schimmel Hyde; Haiyan Chen; John F. Moeller
    Abstract: The purpose of this article is to explore differences in the socioeconomic, demographic characteristics of older adults in the United States with respect to their use of different types of dental care services.
    Keywords: dental insurance, coverage, dental use, service type
    JEL: I
  9. By: Karin Heinschink; Franz Sinabell (WIFO); Thomas Url (WIFO)
    Abstract: Farmers may use financial market instruments to hedge price risks. Moreover, various types of insurance products are on the market to protect against production losses. An insurance that covers losses of both input and output prices was recently introduced in the USA. We develop this concept further by proposing a prototype of an index-based margin insurance which accounts for both production risks and price risks (input and output prices). The prototype is based on standardised gross margin time series for specific activities. It accounts for revenues, variable costs by cost item, various insurance coverage levels, and gross margin. Indemnities are paid if the gross margin falls short of a determined level. We identify steps necessary to accomplish a market-ready insurance product (e.g., data validation, defining the details of the sub-indexes and the premium calculation, evaluating acceptance on the market prior to its launch). Using Austrian data, the innovative approach is exemplified with respect to different farm management practices, more specifically for the case of conventional and organic wheat production. Farmers could benefit from such a margin insurance since production and price risks would be covered in one scheme, thus reducing opportunity costs.
    Keywords: natural hazards, price risk, margin insurance
    Date: 2017–05–29
  10. By: Bertoli, P.; Grembi, V.;
    Abstract: We study the effect of reduced medical liability due to the implementation of scheduled damages on the overuse of cesarean sections. Using data from inpatient discharge records on deliveries in Italy, we exploit the fact that hospitals are distributed across court districts and that only some courts introduced schedules during the period of observation. This allows us to identify the effect of a decrease in liability using a difference-in-difference approach while minimizing the heterogeneities between treated and control hospitals. We show that decreased medical liability increases the incidence of unnecessary cesarean sections by 7 percentage points, which corresponds to a 20% increase at the mean of cesarean sections. The magnitude of the response is higher for hospitals with lower quality and that are far from consumer association headquarters. Lower schedules and higher levels of reimbursements per delivery also increase the overuse of cesarean section. The analysis of the response times, combining the difference-in-difference approach with a regression discontinuity design, shows that the response to decreased liability is already detectable in the short run. Our findings are robust to several sets of robustness checks and are not driven by anticipatory effects or a change in the composition of the treated patients.
    Keywords: Scheduled Damages; Cesarean Sections; Difference in Difference;
    JEL: K13 K32 I13
    Date: 2017–06
  11. By: Nicolas Véron
    Abstract: This Policy Contribution is a lightly edited version of the written statement submitted by the author to the hearing of the Finance Committee of the German Bundestag on the European System of Financial Supervision, held on 31 May 2017 in Berlin. The combination of banking union and Brexit justifies a reform of the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) in the near term, in line with the subsidiarity principle. The other EU-level financial authorities, namely the European Insurance and Occupational Pensions Authority (EIOPA), European Systemic Risk Board (ESRB), Single Resolution Board (SRB) and Single Supervisory Mechanism (SSM), do not immediately require a legislative overhaul. For operational reasons, the October 2017 deadline currently set for the decision on EBA relocation from its current base in London to the EU27 must be respected. In a later phase, the EBA’s governance should also be reviewed to take into account the framework of banking union as is currently in place, including the SRB and SSM. ESMA should be quickly upgraded into a strong and authoritative hub for European Union capital markets supervision and, more generally, financial conduct supervision. This entails a significant overhaul of its governance and funding framework, together with an expansion of its supervisory mandate. The accountability of EBA and ESMA and their scrutiny by the European Parliament should be enhanced as a key element of their governance reform. Further initiatives, including possibly the merger of the SSM, EBA and EIOPA, separation of the SSM from the European Central Bank (ECB), and the folding of the ESRB into the ECB, might be considered in the more distant future, but not in the near term as they would unnecessarily distract from more urgent tasks.
    Date: 2017–06
  12. By: Kyyrä, Tomi (VATT, Helsinki); Pesola, Hanna (VATT, Helsinki)
    Abstract: This paper examines the effects of unemployment benefit duration in Finland. To overcome the prob-lem that the maximum duration of benefits is the same for all unemployed we exploit two observa-tions. First, despite the uniform maximum benefit period, potential benefit duration at the beginning of unemployment spells varies across individuals because only those with sufficient work history in the past two years qualify for a new period of benefits whereas others may be entitled to unused benefit days from a previous spell. Second, part of this variation is exogenous due to a reform that reduced the minimum number of employment weeks required for the new benefit period. Using the exogenous part of the variation for identification we estimate that one extra week of benefits increases expected unemployment duration by 0.15 weeks, which corresponds to an elasticity of 0.5. We also find positive effects on the quality of the next job, especially when measured by job stability.
    Keywords: unemployment insurance, unemployment duration, eligibility conditions
    JEL: J64 J65
    Date: 2017–05
  13. By: Goeschl, Timo; Managi, Shunsuke
    Abstract: In the wake of several high-profile natural disasters, crowding effects between public relief and private investments in disaster preparedness have recently attracted renewed attention. We examine how non-hypothetical self-insurance behavior by households responds to variations in public investments in relief capabilities based on a large disaster preparedness survey (n = 19,071) conducted in Japan in 2012. The preparedness measure used is emergency drinking water storage, defining a setting in which (i) government provides in-kind, rather than cash, relief and (ii) the crowding effect observed is more apt to be total, rather than partial. In contrast to much of the literature studying crowding effects of cash relief, there is little evidence for crowding out in emergency drinking water, with an upper bound of 2 percent at the intensive margin.
    Date: 2017–06–07
  14. By: Matthew Darling; Christopher O’Leary; Irma Perez-Johnson; Jaclyn Lefkowitz; Ken Kline; Ben Damerow; Randall Eberts; Samia Amin; Greg Chojnacki
    Abstract: This infographic summarizes findings from Mathematica’s behavioral insights study conducted for the U.S. Department of Labor’s Reemployment and Eligibility Assessment (REA) program in Michigan.
    Keywords: employment, behavioral, insights, reemployment, Michigan, unemployment insurance
    JEL: J

This nep-ias issue is ©2017 by Soumitra K. Mallick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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