nep-ias New Economics Papers
on Insurance Economics
Issue of 2019‒06‒17
nineteen papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. The Economic Consequences of Hospitalizations for Older Workers across Countries By Mommaerts, Corina; Raza, Syed Hassan; Zheng, Yu
  2. Characteristics of Japanese Life Insurance Companies Disclosing Embedded Value By Tsukahara, Makoto; Nishiyama, Kazuhiro; Nakamura, Ryosuke
  3. Do Unemployment Benefit Extensions Explain the Emergence of Jobless Recoveries? By Mitman, Kurt; Rabinovich, Stanislav
  4. What characterizes farmers who purchase crop insurance in Poland? By Strupczewski, Grzegorz
  5. Old age or dependence. Which social insurance? By Yukihiro Nishimura; Pierre Pestieau
  6. Optimal Ex Post Risk Adjustment in Markets with Adverse Selection * By Anastasios Dosis
  7. Unemployment insurance and wage formation By von Buxhoeveden, Mathias
  8. Evaluation of the Independence at Home Demonstration: Evaluation of Performance Years 1 to 4 (2012-2016) By Laura Kimmey; Michael Anderson; Valerie Cheh; Evelyn Li; Catherine McLaughlin; Linda Barterian; Jay Crosson; Cara Stepanczuk; Lori Timmins
  9. Unemployment insurance and youth labor market entry By von Buxhoeveden, Mathias
  10. The calculation of Solvency Capital Requirement using Copulas By Pellecchia, Marco; Perciaccante, Giovambattista
  11. Generalized Expected Discounted Penalty Function at General Drawdown for L\'{e}vy Risk Processes By Wenyuan Wang; Ping Chen; Shuanming Li
  12. Fractional dimensionality of Weather and a New Approach to Climate Risk Financing in Agriculture: Evidence from Kenya By Turvey, Calum G.; Shee, Apurba; Marr, Ana
  13. Simulating stress in the UK corporate bond market: investor behaviour and asset fire-sales By Baranova, Yuliya; Douglas, Graeme; Silvestri, Laura
  14. Phased Development of a Modern Gateway for Disability Benefits By David C. Stapleton; Yonatan Ben-Shalom; David R. Mann
  15. Evaluation of the Independence at Home Demonstration: An Examination of the First Four Years By Laura Kimmey; Michael Anderson; Valerie Cheh; Evelyn Li; Catherine McLaughlin; Linda Barterian; Jay Crosson; Cara Stepanczuk; Lori Timmins; Jiaqi Li; Shannon Heitkamp; Christine Cheu; Tyler Fisher; Bonnie Harvey; Hope Johnson; Beny Wu; Sam Zhang; Mariel Finucane; Angela Eckstein
  16. Optimal Reinsurance and Investment Strategies under Mean-Variance Criteria: Partial and Full Information By Shihao Zhu; Jingtao Shi
  17. An analysis of Blood Pressure and Medical Expenditures using the Medical Checkup and Receipt Dataset (Japanese) By NAWATA Kazumitsu; MATSUMOTO Akikuni; KIMURA Moriyo
  18. Economic analysis for health benefits package design By James Love-Koh; Susan Griffin; Edward Kataika; Paul Revill; Sibusiso Sibandze; Simon Walker; Jessica Ochalek; Mark Sculpher; Matthias Arnold
  19. Optimally solving banks’ legacy problems By Segura, Anatoli; Suarez, Javier

  1. By: Mommaerts, Corina; Raza, Syed Hassan; Zheng, Yu
    Abstract: This paper estimates the effect of hospital admissions among older workers on economic outcomes across countries. We use harmonized longitudinal survey data from the United States, China, and 13 countries in Europe, and follow the event study design of Dobkin, Finkelstein, Kluender and Notowidigdo (2018) to estimate dynamic effects of a hospitalization on out-of-pocket health expenditures, labor market outcomes, social insurance payments, and household income. We find distinctly different patterns across countries. In contrast to the United States, where hospitalizations lead to large health expenditures and decreases in earnings, individuals in Northern and Southern Europe are largely protected from negative economic outcomes. Hospitalizations in China lead to even larger out-of-pocket expenditures as a percent of prior income, but do not negatively affect labor market outcomes. Our results largely align with the differences in generosity across countries in social protection institutions that include health systems, social security programs and labor market regulations.
    Keywords: cross-country differences; Health shocks; healthcare system; labor market protection; medical spending; social insurance program
    JEL: E21 H53 I13 I18
    Date: 2019–05
  2. By: Tsukahara, Makoto; Nishiyama, Kazuhiro; Nakamura, Ryosuke
    Abstract: In this paper, we analyze the disclosure of Embedded Value (EV) information by Japanese firms with life insurance operations to examine the characteristics that promote unregulated disclosure. As a result of the analysis, we found that companies with a larger solvency-margin ratio (disclosure is required by a statutory solvency standard in Japan) and smaller profits tend to disclose EV. Thus, based on the information required in statutory accounting, companies that perceive that their operating and financial positions are not properly valued voluntarily report EV. This suggests that companies try to eliminate information asymmetry through the disclosure. Furthermore, this result was observed in Japan, where several life insurance companies are structured as mutual companies. This suggests that life insurance companies disclose EV for stakeholders other than shareholders. Therefore, we found the role of EV is different from that described in previous research focusing on value relevance.
    Keywords: embedded value, Japanese firm, unregulated disclosure, life insurance accounting
    Date: 2019–06
  3. By: Mitman, Kurt; Rabinovich, Stanislav
    Abstract: Countercyclical unemployment benefit extensions in the United States act as a propagation mechanism, contributing to both the high persistence of unemployment and its weak correlation with productivity. We show this by modifying an otherwise standard frictional model of the labor market to incorporate a stochastic and state-dependent process for unemployment insurance estimated on US data. Accounting for movements in both productivity and unemployment insurance, our calibrated model is consistent with unemployment dynamics of the past 50 years. In particular, it explains the emergence of jobless recoveries in the 1990's as well as their absence in previous recessions, the low correlation between unemployment and labor productivity, and the apparent shifts in the Beveridge curve following recessions. Next, we embed this mechanism into a medium-scale DSGE model, which we estimate using standard Bayesian methods. Both shocks to unemployment benefits and their systematic component are shown to be important for the sluggish recovery of employment following recessions, in particular the Great Recession, despite the fact that shocks to unemployment benefits account for little of the overall variance decomposition. If we also incorporate other social safety nets, such as food stamps (SNAP), the estimated model assigns an even bigger role to policy in explaining sluggish labor market recovery. We also find that unemployment benefit extensions prevented deflation in the last three recessions, thus acting similarly to a wage markup shock.
    Keywords: business cycles; jobless recoveries; Unemployment insurance
    JEL: E24 E32 J65
    Date: 2019–05
  4. By: Strupczewski, Grzegorz
    Abstract: The purpose of the paper is to compare population of farmers that bought crop insurance with farmers that are uninsured. Based thereon, the author identified features characterizing the insured farmers. These findings were applied to draw more general conclusions concerning factors influencing the insurance awareness and propensity to buy insurance coverage. Demographic, social and economic criteria, individual perception of risk, the loss ratio, and the willingness to pay the insurance premium were taken into consideration. Empirical research is based upon a sample of 150 Polish farmers that were interviewed using the CATI approach. It was found that farms with greater production volume (annual income) and with a larger crop area present higher willingness to buy insurance. Farmers who experienced damage to crops are more inclined to buy insurance coverage. Moreover, higher insurance penetration rate can be found among farmers who are willing to pay a higher price for a crop insurance policy. Surprisingly, despite frequently formulated assumptions, variables such as age of farmer, level of education or individual perception of risk do not determine the decision on insurance purchase.
    Keywords: Agricultural Finance, Crop Production/Industries, Farm Management
    Date: 2019
  5. By: Yukihiro Nishimura (Graduate School of Economics, Osaka University); Pierre Pestieau (CREPP, Universite de Li`ege, CORE)
    Abstract: We consider a society where individuals differ according to their productivity and their risk of mortality and dependency. We show that ac-cording to the most reasonable estimates of correlations among these threecharacteristics, if one had to choose between a public pension system anda long-term care social insurance, the latter should be chosen by a utili-tarian social planner. With a Rawlsian planner, the balance between thetwo schemes does depend on the comparison between the probabilities ofthe worst off individual and the probabilities of the rest of society.
    Keywords: long term care, pension, mortality risk, optimal taxation,liquidity constraints
    JEL: H2 H5
    Date: 2019–04
  6. By: Anastasios Dosis (ESSEC Business School - Essec Business School)
    Abstract: This paper studies general health insurance markets. It proposes an ex post risk adjustment scheme that discourages risk selection and promotes efficient competition. Under the proposed risk adjustment scheme, the regulator engages in transfers that are conditional on the ex post profits of insurers. The risk adjustment scheme is entirely budget balanced, as it does not call for government subsidies, and requires the regulator to hold minimal information to implement it. Equilibrium is shown to exist and be efficient in any environment with a finite number of types and states even if single-crossing is not satisfied.
    Keywords: Risk adjustment,Efficiency,Risk selection,Health insurance
    Date: 2019–02–17
  7. By: von Buxhoeveden, Mathias (IFAU - Institute for Evaluation of Labour Market and Education Policy)
    Abstract: Wage setting models typically posit a tight relationship between the generosity of unemployment insurance (UI) and equilibrium wages. This paper estimates the effect of UI on workers’ wages. I build on a unique feature of the unemployment policy in Sweden, where workers can opt to buy supplement UI coverage above a minimum mandated level. In January 2007, the government sharply increased the price of UI, and the share of workers with supplement coverage fell from 90% to 80%. I exploit variation in the price of UI across industries to measure the effect of industry level UI-coverage on wages. My estimates suggest that a 10 percentage point reduction in the share of workers covered by supplement UI reduce wages by 5%. Since I rely on variation in UI-coverage at the industry level, these estimates contain wage adjustments from collective and individual level bargaining. Finally, I use the estimated UI-wage effect to derive bounds on worker bargaining power in a simple DMP model and find that it can be at most 0.12. This evidence support wage setting mechanisms that tie wages to the generosity of UI.
    Keywords: unemployment; insurance; youth; labor; market; wage; formation
    JEL: J31 J65
    Date: 2019–06–05
  8. By: Laura Kimmey; Michael Anderson; Valerie Cheh; Evelyn Li; Catherine McLaughlin; Linda Barterian; Jay Crosson; Cara Stepanczuk; Lori Timmins
    Abstract: The Independence at Home (IAH) Demonstration tests whether implementing a payment incentive structure and a care delivery model – home-based primary care – leads to reductions in overall health care expenditures and improvements in quality of care for chronically ill Medicare beneficiaries.
    Keywords: Independence at Home, IAH, alternative primary care, home care, home-based primary care, primary care, payment innovation, evaluation, impact
    JEL: I
  9. By: von Buxhoeveden, Mathias (IFAU - Institute for Evaluation of Labour Market and Education Policy)
    Abstract: This paper estimates the effects of unemployment insurance (UI) benefits on job finding rates and entry level wages for unemployed high school leavers. Up to year 2007, Swedish high school-students who became unemployed shortly after graduation were entitled to UI-benefits once they became 20 years of age. Therefore, the start of an unemployment spell relative to the 20:th birthday creates potentially exogenous variation in time to treatment. I exploit this to estimate the effect of UI benefits on unemployment duration and entry level wages. The results show that there is a large and statistically significant negative effect of UI benefits on the employment hazard. There are no detectable effects on entry level wages. This would suggest that unemployment benefits induce high school leavers to postpone labor market entry but does not seem to effect job match quality.
    Keywords: youth; unemployment; insurance; labor; market; entry
    JEL: J64 J65
    Date: 2019–06–04
  10. By: Pellecchia, Marco; Perciaccante, Giovambattista
    Abstract: Our aim is to present an alternative methodology to the standard formula imposed to the insurance regulation (the European directive knows as Solvency II) for the calculus of the capital requirements. We want to demonstrate how this formula is now obsolete and how is possible to obtain lower capital requirement through the theory of the copulas, function that are gaining increasing importance in various economic areas. A lower capital requirement involves the advantage for the various insurance companies not to have unproductive capital that can therefore be used for the production of further profits. Indeed the standard formula is adequate only with some particular assumptions, otherwise it can overestimate the capital requirements that are actually needed as the standard formula underestimates the effect of diversification.
    Keywords: Solvency II, Solvency Capital Requirement, Standard Formula, Value-at-Risk, Copula.
    JEL: C13 C15 C18 C61
    Date: 2019–05–01
  11. By: Wenyuan Wang; Ping Chen; Shuanming Li
    Abstract: This paper considers an insurance surplus process modeled by a spectrally negative L\'{e}vy process. Instead of the time of ruin in the traditional setting, we apply the time of drawdown as the risk indicator in this paper. We study the joint distribution of the time of drawdown, the running maximum at drawdown, the last minimum before drawdown, the surplus before drawdown and the surplus at drawdown (may not be deficit in this case), which generalizes the known results on the classical expected discounted penalty function in Gerber and Shiu (1998). The results have semi-explicit expressions in terms of the $q$-scale functions and the L\'{e}vy measure associated with the L\'{e}vy process. As applications, the obtained result is applied to recover results in the literature and to obtain new results for the Gerber-Shiu function at ruin for risk processes embedded with a loss-carry-forward taxation system or a barrier dividend strategy. Moreover, numerical examples are provided to illustrate the results.
    Date: 2019–06
  12. By: Turvey, Calum G.; Shee, Apurba; Marr, Ana
    Abstract: Climate risk financing programs in agriculture have caught the attention of researchers and policy makers over the last decade. Weather index insurance has emerged as a promising market-based risk financing mechanism. However, to develop a suitable weather index insurance mechanism it is essential to incorporate the distribution of underlying weather and climate risks to a specific event model that can minimize intra-seasonal basis risk. In this paper we investigate the erratic nature of rainfall patterns in Kenya using CHIRPS rainfall data from 1983-2017. We find that the patterns of rainfall are fractional, both erratic and persistent which is consistent with the Noah and Joseph effects well known in mathematics. The erratic nature of rainfall emerges from the breakdown of the convergence to a normal distribution. Instead we find that the distribution about the average is approximately lognormal, with an almost 50% higher chance of deficit rainfall below the mean versus adequate rainfall above the mean. We find that the rainfall patterns obey Hurst law and the measured Hurst coefficients for seasonal rainfall pattern across all years range from a low of 0.137 to a high above 0.685. To incorporate the erratic and persistent nature of seasonal rainfall, we develop a new approach to weather index insurance based upon the accumulated rainfall in any 21-day period falling below 60% of the long-term average for that same 21-day period. We argue that this approach is more satisfactory to matching drought conditions within and between various phenological stages of growth.
    Keywords: Agricultural and Food Policy, Environmental Economics and Policy
    Date: 2019–04–15
  13. By: Baranova, Yuliya (Bank of England); Douglas, Graeme (Bank of England); Silvestri, Laura (Bank of England)
    Abstract: We build a framework to simulate stress dynamics in the UK corporate bond market. This quantifies how the behaviours and interactions of major market participants, including open-ended funds, dealers, and institutional investors, can amplify different types of shocks to corporate bond prices. We model market participants’ incentives to buy or sell corporate bonds in response to initial price falls, the constraints under which they operate (including those arising due to regulation), and how the resulting behaviour may amplify initial falls in price and impact market functioning. We find that the magnitude of amplification depends on the cause of the initial reduction in price and is larger in the case of shocks to credit risk or risk-free interest rates, than in the case of a perceived deterioration in corporate bond market liquidity. Amplification also depends on agents’ proximity to their regulatory constraints. We further find that long-term institutional investors (eg pension funds) only partially mitigate the amplification due to their slower-moving nature. Finally, we find that shocks to corporate bond spreads, similar in magnitude to the largest weekly moves observed in the past, could trigger asset sales that may test the capacity of dealers to absorb them.
    Keywords: Corporate bond market; fire-sales; open-ended investment funds; pension funds; insurance companies; dealers; stress simulation
    JEL: G10 G20
    Date: 2019–06–14
  14. By: David C. Stapleton; Yonatan Ben-Shalom; David R. Mann
    Abstract: This brief describes a phased approach to implementing an Employment/Eligibility Service system that would serve as a new gateway to Social Security Disability Insurance and return-to-work supports for workers that have a medical condition that threatens their ability to stay in the workforce.
    Keywords: Disability, SSDI, employment, work, return-to-work, workforce retention supports, employment/eligibility service system
    JEL: I J
  15. By: Laura Kimmey; Michael Anderson; Valerie Cheh; Evelyn Li; Catherine McLaughlin; Linda Barterian; Jay Crosson; Cara Stepanczuk; Lori Timmins; Jiaqi Li; Shannon Heitkamp; Christine Cheu; Tyler Fisher; Bonnie Harvey; Hope Johnson; Beny Wu; Sam Zhang; Mariel Finucane; Angela Eckstein
    Abstract: This report presents the evaluation findings for the first four years of the IAH demonstration.
    Keywords: Independence at Home, IAH, alternative primary care, home care, home-based primary care, primary care, payment innovation, evaluation, impact
    JEL: I
  16. By: Shihao Zhu; Jingtao Shi
    Abstract: This paper is concerned with an optimal reinsurance and investment problem for an insurance firm under the criterion of mean-variance. The driving Brownian motion and the rate in return of the risky asset price dynamic equation cannot be directly observed. And the short-selling of stocks is prohibited. The problem is formulated as a stochastic linear-quadratic (LQ) optimal control problem where the control variables are constrained. Based on the separation principle and stochastic filtering theory, the partial information problem is solved. Efficient strategies and efficient frontier are presented in closed forms via solutions to two extended stochastic Riccati equations. As a comparison, the efficient strategies and efficient frontier are given by the viscosity solution for the Hamilton-Jacobi-Bellman (HJB) equation in the full information case. Some numerical illustrations are also provided.
    Date: 2019–06
  17. By: NAWATA Kazumitsu; MATSUMOTO Akikuni; KIMURA Moriyo
    Abstract: Hypertension is considered as one of the most important worldwide health risks and many studies have been done about hypertension. In November 2017, The American College of Cardiology (ACC), American Heart Association (AHA) and nine other organizations announced a new hypertension guideline (2017 ACC/AHA guideline). According to the 2017 ACC/AHA guideline, the criterion of hypertension has changed to 130/80 mmHg from the previous 140/90 mmHg. In this paper, we analyzed the relationship between blood pressure (BP) and medical expenditures. First, we made a database containing 175,123 medical checkups and 6,312,125 receipts from 88,211 individuals obtained from three health insurance societies. The sample period was fiscal year 2013 to fiscal year 2016. We then evaluated the distributions of BP and factors affecting BP using regression models. We found out that age, gender, height, BMI (body mass index) and some lifestyles affected BP. Next, we analyzed the relationship between BP and medical expenditures using power transformation Tobit models. Although there was a positive relationship between systolic BP (SBP) and medical expenditures found with a simple two-variable analysis, we observed negative effects of SBP on the medical expenditures in the power transformation Tobit models. When age, gender and BMI were included in the model, the estimate of SBP became negative, indicating a high importance of considering the relationships between covariates. Finally, we discussed the sample selection bias and time-varying variables in the Cox proportional hazard model as the problems of previous studies. The results of this study did not support the new 2017 ACC/AHA guideline, at least for SBP. A wide and careful range of reviews not only for heart diseases but also for other disease types should be done. New studies to verify the guideline will also be absolutely necessary.
    Date: 2019–05
  18. By: James Love-Koh (Centre for Health Economics, University of York, York, UK); Susan Griffin (Centre for Health Economics, University of York, York, UK); Edward Kataika (East, Central and Southern Africa Health Community); Paul Revill (Centre for Health Economics, University of York, York, UK); Sibusiso Sibandze (East, Central and Southern Africa Health Community); Simon Walker (Centre for Health Economics, University of York, York, UK); Jessica Ochalek (Centre for Health Economics, University of York, York, UK); Mark Sculpher (Centre for Health Economics, University of York, York, UK); Matthias Arnold (Centre for Health Economics, University of York, York, UK)
    Abstract: A health benefits package (HBP) defines the list of publicly provided health services offered by a country’s health system. HBPs are seen as an important component toward achieving universal health coverage in low- and middle-income countries. This paper provides an overview of the main considerations that arise when designing and implementing an HBP. The first set of issues relate to the governance of HBPs. The processes for designing and updating the HBP should be transparent, consistent, stable and involve consultation with appropriate stakeholders. These features can improve public support for the HBP by making decision-makers accountable for choices and the HBP process understandable to citizens. Economic considerations are also paramount when selecting interventions to include in an HBP. The value of interventions can be judged on multiple criteria that reflect the various objectives of a specific health system. Economic evaluation methods, such as cost-effectiveness analysis (CEA), can be used to generate evidence on outcomes and costs to help decision makers select a package in pursuit of a common health system objective: improving population health. This can yield the list of interventions and the optimal size of the HBP budget that maximise health outcomes. Economic evaluation methods can also be used to consider how additional health system constraints and objectives can affect decisions around an HBP. These include commitments to principles of equity, limited supply of human resources and equipment, and low levels of implementation.
    Date: 2019–06
  19. By: Segura, Anatoli; Suarez, Javier
    Abstract: We characterize policy interventions directed to minimize the cost to the deposit guarantee scheme and the taxpayers of banks with legacy problems. Non-performing loans (NPLs) with low and risky returns create a debt overhang that induces bank owners to forego profitable lending opportunities. NPL disposal requirements can restore the incentives to undertake new lending but, as they force bank owners to absorb losses, can also make them prefer the bank being resolved. For severe legacy problems, combining NPL disposal requirements with positive transfers is optimal and involves no conflict between minimizing the cost to the authority and maximizing overall surplus. JEL Classification: G01, G20, G28
    Keywords: debt overhang, deposit insurance, non performing loans, optimal intervention, state aid
    Date: 2019–06

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