nep-ias New Economics Papers
on Insurance Economics
Issue of 2018‒05‒07
fifteen papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Ambulance Utilization in New York City after the Implementation of the Affordable Care Act By Charles Courtemanche; Andrew Friedson; Daniel I. Rees
  2. Care Coordination for Children with Special Needs in Medicaid: Lessons from Medicare By Kate A. Stewart; Katharine W.V. Bradley; Joseph S. Zickafoose; Rachel Hildrich; Henry T. Ireys; Randall S. Brown
  3. Imperfect Information and Participation in Insurance Markets: Evidence from Italy By Santeramo, Fabio Gaetano
  4. Idiosyncratic risk, aggregate risk, and the welfare effects of social security By Harenberg, Daniel; Ludwig, Alexander
  5. Intergenerational Risk Sharing in Life Insurance: Evidence from France By Hombert, Johan; Lyonnet, Victor
  6. Idiosyncratic Risk and the Cross-Section of European Insurance Equity Returns By Hassen Raîs
  7. Financing Insurance By Rampini, Adriano A.; Viswanathan, S.
  8. The impact of monetary policy iInterventions on the insurance industry By Pelizzon, Loriana; Sottocornola, Matteo
  9. How Much Consumption Insurance in Bewley Models with Endogenous Family Labor Supply? By Krueger, Dirk; Wu, Chunzan
  10. Ruin probabilities for two collaborating insurance companies By Zbigniew Michna
  11. Multimarket Contact in Health Insurance: Evidence from Medicare Advantage By Haizhen Lin; Ian M. McCarthy
  12. State contingent debt as insurance for euro-area sovereigns By Maria Demertzis; Stavros Zenios
  13. Adoption and Learning Across Hospitals: The Case of a Revenue-Generating Practice By Adam Sacarny
  14. Competition in health care markets: treatment volume and quality By Boone, Jan
  15. The Future Prospect of the Long-term Care Insurance in Japan By Ryuta Ray Kato

  1. By: Charles Courtemanche; Andrew Friedson; Daniel I. Rees
    Abstract: Expanding insurance coverage could, by insulating patients from having to pay full cost, encourage the utilization of arguably unnecessary medical services. It could also eliminate (or at least diminish) the need for emergency services through increasing access to preventive care. Using publicly available data from New York City for the period 2013-2016, we explore the effect of the Affordable Care Act (ACA) on the volume and composition of ambulance dispatches. Consistent with the argument that expanding insurance coverage encourages the utilization of unnecessary medical services, we find that, as compared to dispatches for more severe injuries, dispatches for minor injuries rose sharply after the implementation of the ACA. By contrast, dispatches for pre-labor pregnancy complications decreased as compared to dispatches for women in labor.
    JEL: I11 I13 I18
    Date: 2018–04
  2. By: Kate A. Stewart; Katharine W.V. Bradley; Joseph S. Zickafoose; Rachel Hildrich; Henry T. Ireys; Randall S. Brown
    Abstract: As increasing numbers of children with special healthcare needs move into Medicaid managed care, health plans can improve care coordination using evidence from Medicare.
    Keywords: Medicaid, managed care, children with special healthcare needs, CSHCN
    JEL: I J
  3. By: Santeramo, Fabio Gaetano
    Abstract: Participation in crop insurance programs is lowered by imperfect knowledge resulting in adverse selection and moral hazard problems. We aim at investigating how experience in insurance contracts may influence participation in the Italian crop insurance market. From Italian farm-level data we estimate a dynamic discrete choice model of participation to investigate the role of experience. The methodology, coupled with exploratory analysis of the data, allows one to compare the relevance of different sources of experience in the crop insurance decision making process. We found that experience tend to be a catalyst for insurance participation. Policy implications are discussed: in particular we discuss on the importance of bolstering uptake to exploit the advantages of the inertia and spillover effects that emerge from experience. To the best of our knowledge, the role of experience has been underinvestigated. Our analysis has the specific contribution of modeling the potential role of experience (exploited after buying an insurance contract) on uptake in crop insurance programs.
    Keywords: Asymmetric information; Dynamic model; Familiarity; Imperfect Knowledge; Uptake
    JEL: G22 Q12 Q18
    Date: 2017–11
  4. By: Harenberg, Daniel; Ludwig, Alexander
    Abstract: We ask whether a pay-as-you-go financed social security system is welfare improving in an economy with idiosyncratic productivity and aggregate business cycle risk. We show analytically that the whole welfare benefit from joint insurance against both risks is greater than the sum of benefits from insurance against the isolated risk components. One reason is the convexity of the welfare gain in total risk. The other reason is a direct risk interaction which amplifies the utility losses from consumption risk. We proceed with a quantitative evaluation of social security's welfare effects. We find that introducing an unconditional minimum pension leads to substantial welfare gains in expectation, even net of the welfare losses from crowding out. About 60% of the welfare gains would be missing when simply summing up the isolated benefits.
    Keywords: social security,idiosyncratic risk,aggregate risk,welfare
    JEL: C68 E27 E62 G12 H55
    Date: 2018
  5. By: Hombert, Johan; Lyonnet, Victor
    Abstract: We study intergenerational risk sharing in Euro-denominated life insurance contracts. These savings products represent 80% of the life insurance market in Europe. Using regulatory and survey data for the French market, which is €1.3 trillion large, we analyze the patterns of intergenerational redistribution implemented by these products. We show that contract returns are an order of magnitude less volatile than the return of assets underlying these contracts. Contract return smoothing is achieved using reserves that absorb fluctuations in asset returns and that generate intertemporal transfers across generations of investors. We estimate the average annual amount of intergenerational transfer at 1.4% of contract value, i.e., €17 billion or 0.8% of GDP. Finally, we provide evidence that smoothing makes contract returns predictable, but inflows react only weakly to these predictable returns.
    Keywords: Life insurance; intergenerational risk-sharing
    JEL: G20 G22
    Date: 2017–11–01
  6. By: Hassen Raîs (ESSCA - Ecole Supérieure des Sciences Commerciales d'Angers - ESSCA)
    Abstract: —Based on a survey of 203 Insurance equities from European capital markets over the 2001-2014 period, this article analyses the role of idiosyncratic risk in the pricing of European insurance equities. The capital asset pricing model predicts that in equilibrium, investors should hold the market portfolio. As a result, investors should only be rewarded for carrying undiversifiable systematic risk and not for diversifiable idiosyncratic risk. The framework of Fama and MacBeth is employed. Regressions of the cross-section of expected equity excess returns on idiosyncratic risk and other firm characteristics such as beta, size, book-to-market equity (BE/ME), momentum, liquidity and co-skewness are performed. The empirical models reveal that the largest part of total volatility is idiosyncratic and therefore firm specific in nature. Simple cross-correlations indicate that high beta, small size, high BE/ME, low momentum, low liquidity and high co-skewness equities have higher idiosyncratic risk.
    Keywords: EGARCH,Insurance equities,cross-section,idiosyncratic risk,idiosyncratic volatility
    Date: 2016–12
  7. By: Rampini, Adriano A.; Viswanathan, S.
    Abstract: Insurance has an intertemporal aspect as insurance premia have to be paid upfront. We argue that the financing aspect of insurance is key to understanding basic insurance patterns. In a model with limited enforcement, we show that insurance is globally monotone increasing in household net worth and income, incomplete, and precautionary. These results hold in economies with income risk, durable goods and collateral constraints, and durable goods price risk that affects asset values, under quite general conditions. In equilibrium, insurers are financial intermediaries with collateralized loans as assets and diversified portfolios of insurance claims as liabilities. Collateral scarcity lowers the interest rate, reduces insurance, and increases inequality.
    Keywords: Collateral; Financial constraints; household finance; Insurance; Risk management
    JEL: D91 E21 G22
    Date: 2018–04
  8. By: Pelizzon, Loriana; Sottocornola, Matteo
    Abstract: This paper investigates the effect of the conventional and unconventional (e.g. Quantitative Easing - QE) monetary policy intervention on the insurance industry. We first analyze the impact on the stock performances of 166 (re)insurers from the last QE programme launched by the European Central Bank (ECB) by constructing an event study around the announcement date. Then we enlarge the scope by looking at the monetary policy surprise effects on the same sample of (re)insurers over a timeframe of 12 years, also extending the analysis to the Credit Default Swaps (CDS) market. In the second part of the paper by building a set of balance sheet-based indices, we identify the characteristics of (re)insurers that determine sensitivity to monetary policy actions. Our evidences suggest that a single intervention extrapolated from the comprehensive strategy cannot be utilized to estimate the effect of monetary policy intervention on the market. With respect to the impact of monetary policies, we show how the effect of interventions changes over time. Expansionary monetary policy interventions, when generating an instantaneous reduction of interest rates, generated movement in stock prices in the same direction till September 2010. This effect turned positive during the European sovereign debt crisis. However, the effect faded away in 2014-2015. The pattern is confirmed by the impact on the CDS market. With regard to the determinants of these effects, our analysis suggests that sensitivity is mainly driven by asset allocation and in particular by exposure to fixed income assets.
    Keywords: event study,monetary policy surprise,unconventional monetary policy,conventional monetary policy,insurance industry
    JEL: E44 E52 G14 G22
    Date: 2018
  9. By: Krueger, Dirk; Wu, Chunzan
    Abstract: We show that a calibrated life-cycle two-earner household model with endogenous labor supply can rationalize the extent of consumption insurance against shocks to male and female wages, as estimated empirically by Blundell, Pistaferri and Saporta-Eksten (2016) in U.S. data. With additively separable preferences, 43% of male and 23% of female permanent wage shocks pass through to consumption, compared to the empirical estimates of 34% and 20%. With non-separable preferences the model predicts more consumption insurance, with pass-through rates of $29% and $16%. Most of the consumption insurance against permanent male wage shocks is provided through the labor supply response of the female earner.
    Keywords: Bewley Models; Consumption Insurance; Labor Supply
    Date: 2018–03
  10. By: Zbigniew Michna
    Abstract: In this note we find a formula for the supremum distribution of spectrally positive or negative L\'evy processes with a broken linear drift. This gives formulas for ruin probabilities in the case when two insurance companies (or two branches of the same company) divide between them both claims and premia in some specified proportions. As an example we consider gamma L\'evy process, $\alpha$-stable L\'evy process and Brownian motion. Moreover we obtain identities for Laplace transform of the distribution for the supremum of L\'evy processes with randomly broken drift and on random intervals.
    Date: 2018–04
  11. By: Haizhen Lin; Ian M. McCarthy
    Abstract: Many industries, including health insurance, are characterized by a handful of large firms that compete in multiple geographic markets. Such overlap across markets, defined as multimarket contact (MMC), may facilitate tacit collusion and thus reduce the intensity of competition. We examine the effects of MMC on health insurance prices and quality using comprehensive data on the Medicare Advantage (MA) market from 2008 through 2015. Our estimation strategy exploits two plausibly exogenous changes to MMC: 1) a merger-induced change in MMC due to consolidations in other markets; and 2) reimbursement policy changes in which benchmark rates were increased in a subset of markets, encouraging additional entry into those markets and therefore affecting MMC even in markets otherwise unaffected by the policy itself. Across a range of estimates and alternative measures of MMC, our results consistently support the mutual forbearance hypothesis, where we find that prices are significantly higher and quality significantly lower as MMC increases. These results suggest MMC as one potential channel through which cross-market mergers and acquisitions could soften competitiveness in local markets.
    JEL: I11 L11
    Date: 2018–04
  12. By: Maria Demertzis; Stavros Zenios
    Abstract: The euro-area sovereign debt crisis is receding. Europe is on a recovery path, growth is broad-based and unemployment is falling. One after the other, countries hit hardest by the crisis are exiting their adjustment programmes. However, debt remains high in most countries and future debt crises should not be ruled out. While the memories are fresh, it is a good time to think about insurance against future shocks. Such insurance schemes must involve risk sharing with the markets. They weaken the bank-sovereign doom loop from the sovereigns’ side, and not just from the banks’ side as pursued by the banking union, and make for a more resilient euro area. The promotion of the banking union and the establishment of a European Monetary Fund are institution-based solutions to crises. Banking union provides the safety regulations that will make banking institutions more resilient, while the EMF is a ‘fire brigade’ to be called on in emergencies. What has not been tapped are the markets, whose tolerant behaviour to sovereign demands encouraged the built up of debt, while their finicky response exacerbated the crisis. Taking ongoing G20 discussions on sovereign contingent debt as the point of departure, the authors argue that these instruments could provide market-based insurance to protect the euro area from future debt crises. Risk-sharing with the markets is a constructive way forward in the context of the Franco-German debate on risk-sharing among states versus system-wide risk reduction. The financial innovation of contingent debt is a practical euro-area reform that would not introduce risk-sharing between states or require institutional reforms or Treaty changes. However, coordination would be needed.
    Date: 2018–04
  13. By: Adam Sacarny
    Abstract: Performance-raising practices tend to diffuse slowly in the health care sector. To understand how incentives drive adoption, I study a practice that generates revenue for hospitals: submitting detailed documentation about patients. After a 2008 reform, hospitals could raise their Medicare revenue over 2% by always specifying a patient’s type of heart failure. Hospitals only captured around half of this revenue, indicating that large frictions impeded takeup. Exploiting the fact that many doctors practice at multiple hospitals, I find that four-fifths of the dispersion in adoption reflects differences in the ability of hospitals to extract documentation from physicians. Hospital adoption is robustly correlated with generating survival for heart attack patients and using inexpensive survival-raising standards of care. Hospital-physician integration and electronic medical records also influence adoption. These findings highlight the potential for institution-level frictions, including agency conflicts, to explain variations in health care performance across providers.
    JEL: D22 I1 L2 O31 O33
    Date: 2018–04
  14. By: Boone, Jan
    Abstract: This paper introduces a workhorse model to analyze the effects of provider and insurer competition in health care markets. The two contracting imperfections we focus on are the following: (i) whether or not a patient should be treated and (ii) treatment quality are both not contractible. We derive conditions under which the market can implement first best quality and volume with the optimal competition intensities. First best competition intensity is strictly positive in both markets. If there is under-investment in quality, provider competition should be increased. Increasing insurer competition tends to increase treatment volume. If the planner cannot make the provider market competitive enough, it is optimal to increase insurer competition beyond its first best level thereby creating over-treatment.
    Keywords: competition in health care markets; insurer competition; provider competition; treatment quality; treatment volume
    JEL: I11 I13
    Date: 2018–04
  15. By: Ryuta Ray Kato (International University of Japan)
    Abstract: This paper explores the impact of population aging on the Japanese public longterm care insurnace (LTCI) within a numerical dynamic general equilibrium model with multiple overlapping generations. The impact of three policy options, such as an increase in co-payments, an earlier starting age of contribution, and more distribution of the cost to the public sector, is also examined. The numerial results show that in the next about forty years the burdens on the first (age 65 and over) and second (age 40 to 64) groups become more than 1.7 times and more than 2.7 times as much, respectively. A relatively more increase in the burdens on the second group cannot be avaiodable, even if adjustment of the cost distribution between both groups is made every three years in the future in accordance with the schedule by the MHLW. Furthermore, in order to reduce future burdens in the LTCI, an increase in co-payments is most preferable, rather than an earlier starting age of contribution in longer duration of contribution with lower burdens every year, or a shift of the cost to the public sector followed by a very higher consumption tax.
    Keywords: Long-term Care Insurance, Population Aging, Japan, Simulation
    JEL: C68 H51 E62 H55 J16
    Date: 2017–10

This nep-ias issue is ©2018 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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.