nep-ias New Economics Papers
on Insurance Economics
Issue of 2018‒04‒02
eleven papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Health insurance coverage vs self-prevention: What impact of the insurer's healthcare prevention programs ? By Jean-Yves Lesueur
  2. Will Urban Migrants Formally Insure their Rural Relatives? Family Networks and Rainfall Index Insurance in Burkina Faso By Harounan Kazianga; Zaki Wahhaj
  3. Capital regulation and product market outcomes By Sen, Ishita; Humphry, David
  4. Preliminary investigations for better monitoring. Learning in repeated insurance audits By Reda Aboutajdine; Pierre Picard
  5. Universal Health Insurance in the Republic of Macedonia and Effects from the Implementation of the Project "Health Insurance for All" By Maja Parnardzieva-Zmejkova; Vladimir Dimkovski
  6. Quantile optimization under derivative constraint By Zuo Quan Xu
  7. Does Having Insurance Change Individuals' Self-confidence? By Guber, Raphael; Kocher, Martin G.; Winter, Joachim
  8. Stochastic Approximation Schemes for Economic Capital and Risk Margin Computations By David Barrera; Stéphane Crépey; Babacar Diallo; Gersende Fort; Emmanuel Gobet; Uladzislau Stazhynski
  9. Risk Taking to Succeed: Occupational Choice and the Positive Effects of Progressive Taxation By Pedro Silos; German Cubas
  10. The Optimal Duration of Unemployment Benefits * By Gilles Joseph; Paul-Emile Maingé
  11. How Much Consumption Insurance in the U.S.? By Iourii Manovskii; Dmytro Hryshko

  1. By: Jean-Yves Lesueur (Université de Lyon)
    Abstract: The yardstick competition between European health care system is not calling for the french system. Disability-free life expectancy at 65 is, for example, at a better level in few North European countries for a same level of public health expenditures than the french system. As the health french system is original because of its mixed private and public health insurance coverage system, some recent institutional reforms introduced incentives to develop individual preventive care attitudes and a new health insurance market design where private insurers invests in preventive action. In that way, the National Interprofessional Agreement that was established since 2016 between insurance companies and private firms, generated new forms of health insurance contrats that includes a free offer of preventive care. The purpose of the paper is to evaluate the impact of this free health preventive service on the optimal decision between self insurance (vs self protection) and private market demand insurance by policyholders. We demonstrated that the standard properties of insurance model in the line of Ehrlich and Becker (1972) call into question. Our results raised the debate on the optimal design market between the health profile of the insurant and its choice of health coverage.
    Abstract: La concurrence par comparaison des systèmes de santé Européen ne plaide pas en faveur du cas français. A dépenses de santé identiques voire plus faibles, plusieurs partenaires européens manifestent de meilleurs résultats en espérance de vie sans incapacité à 65 ans comme en taux de décès prématurés évitables par prévention primaire avant 65 ans. Face à ce paradoxe, les réformes institutionnelles mises en oeuvre ces dernières années, ont eu pour objectif de déplacer le curseur de la médecine curative vers la médecine préventive. Dans un contexte de déficit public, les incitations visent à favoriser le développement d'un marché de la prévention lié au marché de l'assurance complémentaire santé. Avec l'Accord National Interprofessionnel (ANI) mis en place depuis 2016, les entreprises du secteur privé ont obligation de proposer une complémentaire-santé à leurs salariés. Par cet accord, les contrats d'assurance collectifs, mais par contamination aussi les contrats individuels, sont accompagnés d'une offre, souvent incluse et gratuite, de programmes de prévention assurant un accompagnement personnalisé des assurés dans leur hygiène de vie et leur santé. On étudie dans cet article les conséquences du point de vue de l'assuré de l'adhésion à de tels programmes de prévention. Il s'agit notamment d'analyser l'impact de cette offre gratuite de prévention, sur l'arbitrage entre effort de prévention et couverture assurantielle. Nous montrons que la gestion du risque d'aléa moral est dans ce contexte fortement affectée par rapport aux prédictions des modèles d'assurance s'inscrivant dans la lignée de l'article précurseur d'Ehrlich et Becker (1972). Nos résultats mettent en évidence des comportements de sous-assurance en prévention primaire et de sur-assurance en prévention secondaire.
    Date: 2018–02–26
  2. By: Harounan Kazianga; Zaki Wahhaj
    Abstract: We present findings from a pilot study exploring whether and how existing ties between urban migrants and rural farmers may be used to provide the latter improved access to formal insurance. Urban migrants in Ouagadougou (the capital of Burkina Faso) originating from nearby villages were offered, at the prevailing market price, a rainfall index insurance product that can potentially protect their rural relatives from adverse weather shocks. The product had an uptake of 22% during the two-week subscription window. Uptake rates were higher by 17-22 percentage points among urban migrants who were randomly offered an insurance policy that would make pay-outs directly to the intended beneficiary rather than the subscriber. We argue that rainfall index insurance can complement informal risk-sharing networks by mitigating problems of informational asymmetry and self-control issues.
    Keywords: Microinsurance markets; Indexed insurance; Rainfall; Migration; Informal insurance networks
    JEL: O15 O16 G21
    Date: 2018–03
  3. By: Sen, Ishita (London Business School); Humphry, David (Bank of England)
    Abstract: This paper examines the impact of the introduction of a risk-based capital regulation regime in 2002 on product market outcomes for the insurance industry in the United Kingdom. Using proprietary data on stress-test submissions from the Bank of England, we develop a measure of firm-level shocks to regulatory constraints that is plausibly exogenous to shifts in insurance demand. We find that constrained firms reduced underwriting relative to unconstrained firms, particularly for traditional insurance products which became more capital intensive in the new regulatory regime. The reduction in underwriting was not as pronounced for linked products, products that are mainly investment vehicles like mutual funds, implying a shift in the equilibrium product mix from traditional to linked. We also show that a higher proportion of constrained firms restructured their balance sheets by transferring assets and liabilities and went through reorganizations ie a change in legal owner of the firm.
    Keywords: Risk-based capital regulation; stress testing; life insurance; trends in asset management
    JEL: G22 G28 G32
    Date: 2018–03–02
  4. By: Reda Aboutajdine (Department of Economics, Ecole Polytechnique - Polytechnique - X - CNRS - Centre National de la Recherche Scientifique, CREST - Centre de Recherche en Économie et Statistique - INSEE - ENSAE ParisTech - École Nationale de la Statistique et de l'Administration Économique); Pierre Picard (Department of Economics, Ecole Polytechnique - Polytechnique - X - CNRS - Centre National de la Recherche Scientifique, CREST - Centre de Recherche en Économie et Statistique - INSEE - ENSAE ParisTech - École Nationale de la Statistique et de l'Administration Économique)
    Abstract: Audit mechanisms frequently take place in the context of repeated relationships between auditor and auditee. This paper focuses attention on the insurance fraud problem in a setting where insurers repeatedly verify claims satisfied by service providers (e.g., affiliated car repairers or members of managed care networks). We highlight a learning bias that leads insurers to over-audit service providers at the beginning of their relationship. The paper builds a bridge between the literature on optimal audit in insurance and the exploitation/exploration trade-off in multi-armed bandit problems.
    Keywords: learning,optimal auditing,ex-post moral hazard,insurance fraud
    Date: 2018–02–20
  5. By: Maja Parnardzieva-Zmejkova; Vladimir Dimkovski
    Date: 2017–10
  6. By: Zuo Quan Xu
    Abstract: This paper studies a new type of quantile optimization problems arising from insurance contract design models. This type of optimization problems is characterized by a constraint of \emph{infinity}-dimension, that is, the derivatives of the decision quantile functions are bounded. Such a constraint essentially comes from the "incentive compatibility" constraint for any optimal insurance contract to avoid the potential severe problem of moral hazard in insurance contract design models. By a further development of the author's relaxation method, this paper provides a systemic approach to solving this new type of quantile optimization problems. The optimal quantile is expressed via the solution of a free boundary problem for a second-order nonlinear ordinary differential equation (ODE), which is similar to the Black-Scholes ODE for perpetual American options and has been well studied in literature theoretically and numerically.
    Date: 2018–03
  7. By: Guber, Raphael (Munich Center for the Economics of Aging, Max Planck Society, Germany); Kocher, Martin G. (Department of Economics, University of Vienna, Austria, and Institute for Advanced Studies, Vienna, Austria, and Department of Economics, University of Gothenburg, Sweden); Winter, Joachim (Department of Economics, University of Munich, Germany)
    Abstract: Recent research in contract theory on the effects of behavioral biases implicitly assumes that they are stable, in the sense of not being affected by the contracts themselves. In this paper, we provide evidence that this is not necessarily the case. We show that in an insurance context, being insured against losses that may be incurred in a real-effort task changes subjects' self-confidence. Our novel experimental design allows us to disentangle selection into insurance from the effects of being insured by randomly assigning coverage after subjects revealed whether they want to be insured or not. We find that uninsured subjects are underconfident while those that obtain insurance have well-calibrated beliefs. Our results suggest that there might be another mechanism through which insurance affects behavior than just moral hazard.
    Keywords: Overconfidence, insurance choice, underplacement
    JEL: D84 D82 C91
    Date: 2018–03
  8. By: David Barrera (CMAP - Centre de Mathématiques Appliquées - Ecole Polytechnique - Polytechnique - X - CNRS - Centre National de la Recherche Scientifique); Stéphane Crépey (LaMME - Laboratoire de Mathématiques et Modélisation d'Evry - INRA - Institut National de la Recherche Agronomique - UEVE - Université d'Évry-Val-d'Essonne - ENSIIE - CNRS - Centre National de la Recherche Scientifique); Babacar Diallo (LaMME - Laboratoire de Mathématiques et Modélisation d'Evry - INRA - Institut National de la Recherche Agronomique - UEVE - Université d'Évry-Val-d'Essonne - ENSIIE - CNRS - Centre National de la Recherche Scientifique); Gersende Fort (IMT - Institut de Mathématiques de Toulouse UMR5219 - CNRS - Centre National de la Recherche Scientifique - INSA Toulouse - Institut National des Sciences Appliquées - Toulouse - PRES Université de Toulouse - UPS - Université Paul Sabatier - Toulouse 3 - UT2 - Université Toulouse 2 - UT1 - Université Toulouse 1 Capitole); Emmanuel Gobet (CMAP - Centre de Mathématiques Appliquées - Ecole Polytechnique - Polytechnique - X - CNRS - Centre National de la Recherche Scientifique); Uladzislau Stazhynski (CMAP - Centre de Mathématiques Appliquées - Ecole Polytechnique - Polytechnique - X - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We consider the problem of the numerical computation of its economic capital by an insurance or a bank, in the form of a value-at-risk or expected shortfall of its loss over a given time horizon. This loss includes the appreciation of the mark-to-model of the liabilities of the firm, which we account for by nested Monte Carlo à la Gordy and Juneja (2010) or by regression à la Broadie, Du, and Moallemi (2015). Using a stochastic approximation point of view on value-at-risk and expected shortfall, we establish the convergence of the resulting economic capital simulation schemes, under mild assumptions that only bear on the theoretical limiting problem at hand, as opposed to assumptions on the approximating problems in Gordy-Juneja (2010) and Broadie-Du-Moallemi (2015). Our economic capital estimates can then be made conditional in a Markov framework and integrated in an outer Monte Carlo simulation to yield the risk margin of the firm, corresponding to a market value margin (MVM) in insurance or to a capital valuation adjustment (KVA) in banking par- lance. This is illustrated numerically by a KVA case study implemented on GPUs.
    Date: 2018–02–15
  9. By: Pedro Silos (Temple University); German Cubas (University of Houston)
    Abstract: Occupations differ in their degree of earnings uncertainty. Progressive taxation provides insurance to risk-averse workers against adverse earnings outcomes. As a result, progressive tax systems distort the price of risk and influence the mo- bility and sorting of workers across occupations. This paper proposes a theory to understand the effect of the degree of tax progressivity on workers’ career choices when markets are incomplete. We quantify the distortion and we find that tax progressivity incentives young workers to take on risk, thus partially completing the insurance markets. Hence, we provide a new perspective on the welfare cost of uninsurable earnings risk. To that end, we employ micro-data on occupational mobility and earnings from the United States and Germany to estimate a model of occupational choice and uninsurable earnings uncertainty. The model predicts that, as observed in the data, everything else equal, were US workers to face the relatively more progressive earnings tax function of Germany, a larger fraction of young workers will take risk and they will end up working into safer occupations.
    Date: 2017
  10. By: Gilles Joseph (LC2S - Laboratoire caribéen de sciences sociales - CNRS - Centre National de la Recherche Scientifique - UA - Université des Antilles); Paul-Emile Maingé (LAMIA - Laboratoire de Mathématiques Informatique et Applications - UAG - Université des Antilles et de la Guyane)
    Abstract: This paper studies the optimal duration of unemployment insurance (UI) benefits in a basic job search model where a risk neutral UI agency can not monitor the search effort of risk-averse workers. Social assistance payments are taken as exogenous by the unemployment agency which chooses optimally the level of UI benefits, the date of their exhaustion and the level of the financing tax. So, due to possible finite values of the duration of unemployment benefits, the resulting agency's problem brings nonstationarity complexities that are usually deemed intractable in models where utility and search costs functions are nonlinear. We then propose a new strategy, based on the study of the geometric properties of the set of constraints, and explicit formal conditions, with very general utility and search costs functions , for obtaining a zero, positive or infinite optimal duration of UI.
    Keywords: Moral hazard,Job search,Potential benefits duration,Unemployment insurance
    Date: 2018–03–02
  11. By: Iourii Manovskii (University of Pennsylvania); Dmytro Hryshko (University of Alberta)
    Abstract: Most of what the profession knows about joint income and consumption dynamics at the household level in the U.S. is based on the data from the Panel Study of Income Dynamics (PSID). We find that there are two sets of households in the PSID that differ dramatically in the dynamics of their income and consumption. Households headed by the original PSID males and their sons have a highly persistent income process, and permanent shocks to their income almost fully pass through to consumption. Household headed by males who marry daughters of the original PSID members have a much less persistent income process and a dramatically higher degree of insurance. These differences are surprising but highly robust. Conditional on income dynamics, the degree of insurance in each subsample is consistent with the prediction of the standard incomplete-markets model. This is in contrast to the famous puzzle in Blundell, Pistaferri, and Preston (2008) of excess insurance of permanent income shocks for the combined sample.
    Date: 2017

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