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on Insurance Economics |
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Issue of 2019‒07‒22
nineteen papers chosen by Soumitra K. Mallick Indian Institute of Social Welfare and Business Management |
| By: | Timothy J. Halliday; Randall Q. Akee; Tetine Sentell; Megan Inada; Jill Miyamura |
| Abstract: | In March 2015, the State of Hawaii stopped covering the vast majority of migrants from countries belonging to the Compact of Free Association (COFA) in the state Medicaid program. COFA migrants were instead required to obtain private insurance in the exchanges established under the Affordable Care Act. Using statewide administrative hospital discharge data, we show that Medicaid-funded hospitalizations and emergency room visits declined in this population by 69% and 42% after the expiration of Medicaid eligibility. This decrease occurred despite the fact that low-income COFA households were eligible for state-funded premium coverage for private insurance. Utilization funded by private insurance did increase, but not enough to offset the declines in Medicaid-funded utilization. Uninsured ER visits increased as a consequence of the expiration of Medicaid benefits. Paradoxically, we also find a substantial increase in Medicaid-funded ER visits by infants after the expiration of benefits. |
| JEL: | I10 I14 J61 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26030&r=all |
| By: | Timothy J. Layton; Nicole Maestas; Daniel Prinz; Boris Vabson |
| Abstract: | Public health insurance benefits in the U.S. are increasingly provided by private firms, despite mixed evidence on welfare effects. We investigate the impact of privatization in Medicaid by exploiting the staggered introduction of county-level mandates in Texas that required disabled beneficiaries to switch from public to private plans. Compared to the public program, which used blunt rationing to control costs, we find privatization led to improvements in healthcare—including increased consumption of high-value drug treatments and fewer avoidable hospitalizations—but also higher Medicaid spending. We conclude that private provision can be beneficial when constraints in the public setting limit efficiency. |
| JEL: | H51 H53 H75 I13 I18 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26042&r=all |
| By: | Leonardo Badea (Authority of Financial Supervision, Bucharest); Calin Rangu (Authority of Financial Supervision, Bucharest) |
| Abstract: | Cyber-security beyond the concept must be a product to be offered to modern society. We live in a complex world based on the digitization of products and services. Digitization also involves a complex system of associated risks. The road to the world of tomorrow goes through today's world and an analysis of the current situation in the contemporary economies about cyber risk insurance is only a first step that this article aims to achieve.The study aims to substantiate the need to formulate and assume policies and to support the regulation of cyber risk coverage by ensuring the need to support sectoral strategies to increase the level of maturity of companies from the perspective of protection against cyber threats. There is also a need to set up a cyber-risk reporting system, at least for critical and important infrastructures, the development and use by insurers of advisory and evaluation models based on standards and certifications recognized at the level of including the development of necessary skills for insurers to engineer these risks. |
| Keywords: | cyber risk, insurance, risk management, GDPR, underwriting, CISO, IT security, privacy, availability, data integrity, critical infrastructure, NIS, CERT |
| JEL: | D81 G22 H56 M15 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:fst:wpaper:0026&r=all |
| By: | James A. Kahn; Benjamin S. Kay |
| Abstract: | We provide new evidence that credit supply shifts contributed to the U.S. subprime mortgage boom and bust. We collect original data on both government and private mortgage insurance premiums from 1999-2016, and document that prior to 2008, premiums did not vary across loans with widely different observable characteristics that we show were predictors of default risk. Then, using a set of post-crisis insurance premiums to fit a model of default behavior, and allowing for time-varying expectations about house price appreciation, we quantify the mispricing of default risk in premiums prior to 2008. We show that the flat premium structure, which necessarily resulted in safer mortgages cross-subsidizing riskier ones, produced substantial adverse selection. Government insurance maintained an even flatter premium structure even post-crisis, and consequently also suffered from adverse selection. But after 2008 it reduced its exposure to default risk through a combination of hi gher premiums and rationing at the extensive margin. |
| Keywords: | Default Risk ; Financial Crisis ; Housing Finance ; Mortgage Insurance |
| JEL: | E32 G21 E44 |
| Date: | 2019–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2019-46&r=all |
| By: | Chahboun, Imad (Federal Reserve Bank of Boston); Hoover, Nathaniel (Federal Reserve Bank of Boston) |
| Abstract: | This paper presents a quantitative model designed to understand the sensitivity of variable annuity (VA) contracts to market and actuarial assumptions and how these sensitivities make them a potentially important source of risk to insurance companies during times of stress. VA contracts often include long dated guarantees of market performance that expose the insurer to multiple nondiversifiable risks. Our modeling framework employs a Monte Carlo simulation of asset returns and policyholder behavior to derive fair prices for variable annuities in a risk neutral framework and to estimate sensitivities of reserve requirements under a real‐world probability measure. Simulated economic scenarios are applied to four hypothetical insurance company VA portfolios to assess the sensitivity of portfolio pricing and reserve levels to portfolio characteristics, modelling choices, and underlying economic assumptions. Additionally, a deterministic stress scenario, modeled on Japan beginning in the mid‐90s, is used to estimate the potential impact of a severe, but plausible, economic environment on the four hypothetical portfolios. The main findings of this exercise are: (1) interactions between market risk modeling assumptions and policyholder behavior modeling assumptions can significantly impact the estimated costs of providing guarantees, (2) estimated VA prices and reserve requirements are sensitive to market price discontinuities and multiple shocks to asset prices, (3) VA prices are very sensitive to assumptions related to interest rates, asset returns, and policyholder behavior, and (4) a drawn‐out period of low interest rates and asset underperformance, even if not accompanied by dramatic equity losses, is likely to result in significant losses in VA portfolios. |
| Keywords: | insurance risk; market risk; variable annuities; derivative pricing; policyholder behavior |
| JEL: | C15 G12 G17 G22 G23 |
| Date: | 2019–04–09 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbqu:rpa19-1&r=all |
| By: | Diana Dorobantu (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon); Yahia Salhi (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon); Pierre-Emmanuel Thérond (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon) |
| Abstract: | The attractiveness of insurance saving products is driven, among others, by dividends payments to policyholders and participation in profits. These are mainly constrained by regulatory measures on profit-sharing on the basis of statutory accounts. Moreover, since both prudential and financial reporting regulation require market consistent best estimate measurement of insurance liabilities, cash-flows projection models have to be used for such a purpose in order to derive the underlying financial incomes. Such models are based on Monte-Carlo techniques. The latter should simulate future accounting profit and losses needed for profit-sharing mechanisms. In this paper we deal with impairment losses on equity securities for financial portfolios which rely on instrument-by-instrument assessment (when projection models consider groups of shares). Our motivation is to describe the joint distribution of market value and impairment provision of a book of equity securities, with regard to the French accounting rules for depreciation. The results we obtain enable to improve the ability of projection models to represent such an asymmetric mechanism. Formally, an impairment loss is recognized for an equity instrument if there has been a significant and prolonged decline in its market value below the carrying cost (acquisition value). Such constraints are formalized using an assumption on the dynamics of the equity, and leads to a complex option-like pay-off. Using this formulation, we propose analytical formulas for some quantitative measurements related the impairments losses of a book of financial equities. These are derived on a general framework and some tractable example are illustrated. We also investigate the operational implementation of these formulas and compare their computational time to a basic simulation approach. |
| Keywords: | Insurance,Impairment Losses,Joint Density *,Correlated Brownian Motions,Best Estimate Technical Provision |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-01840057&r=all |
| By: | International Monetary Fund |
| Abstract: | Financial Sector Assessment Program; Technical Note-Insurance Regulation and Supervision |
| Date: | 2019–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/185&r=all |
| By: | Kristian Buchardt; Christian Furrer; Thomas M{\o}ller |
| Abstract: | We study the problem of determining risk-minimizing investment strategies for insurance payment processes in the presence of taxes and expenses. We consider the situation where taxes and expenses are paid continuously and symmetrically and introduce the concept of tax- and expense-modified risk-minimization. Risk-minimizing strategies in the presence of taxes and expenses are derived and linked to Galtchouk-Kunita-Watanabe decompositions associated with modified versions of the original payment processes. Furthermore, we show equivalence to an alternative approach involving an artificial market consisting of after-tax and after-expense assets, and we establish a type of consistency with classic risk-minimization. Finally, a case study involving classic multi-state life insurance payments in combination with a bond market exemplifies the results. |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1907.04230&r=all |
| By: | International Monetary Fund |
| Abstract: | Financial Sector Assessment Program; Technical Note-Insurance Stress Testing |
| Date: | 2019–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/186&r=all |
| By: | McGrattan, Ellen R. (Federal Reserve Bank of Minneapolis); Miyachi, Kazuaki (Asia Pacific Department, International Monetary Fund); Peralta-Alva, Adrian (International Monetary Fund) |
| Abstract: | Japan is facing the problem of how to finance retirement, health care, and long-term care expenditures as the population ages. This paper analyzes the impact of policy options intended to address this problem by employing a dynamic general equilibrium overlapping generations model, specifically parameterized to match both the macro- and microeconomic level data of Japan. We find that financing the costs of aging through gradual increases in the consumption tax rate delivers better macroeconomic performance and higher welfare for most individuals relative to other financing options, including raising social security contributions, debt financing, and a uniform increase in health care and long-term care copayments. |
| Keywords: | Retirement; Health care; Taxation; Aging; Japan |
| JEL: | E62 H51 H55 I13 |
| Date: | 2019–06–07 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:586&r=all |
| By: | Darius N. Lakdawalla; Charles E. Phelps |
| Abstract: | Cost-effectiveness analysis (CEA) remains the de-facto method of choice to evaluate and compare medical interventions. Standard approaches to CEA use the average (mean) outcomes from clinical effectiveness studies such as randomized controlled trials. This paper generalizes standard methods to include uncertainty in clinical outcomes and proposes a generalized version of the quality-adjusted life-year (QALY), referred to as a quality- and risk-adjusted life-year (QRALY). Our approach requires new information from clinical studies – not only means and variances of health outcomes, but also skewness. With that added parameter, this paper shows how Taylor Series expansions of expected utility can account for two distinct effects of uncertainty: the “insurance value” of reducing overall risks to health, and the “value of hope” produced by the presence of positively skewed outcomes. Simulations demonstrate that stochastic terms are particularly important when baseline disease severity is high, and mean treatment effects are low. They also demonstrate that the variance-based term has the greatest importance among the stochastic terms, although skewness- and kurtosis-based terms can be significant in some situations. |
| JEL: | I1 I13 I18 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26058&r=all |
| By: | Costas Meghir (Cowles Foundation, Yale University, NBER, IZA, CEPR, and Institute for Fiscal Studies); Ahmed Mushfiq Mobarak (Cowles Foundation, Yale University); Ahmed Corina Mommaerts (University of Wisconsin – Madison); Ahmed Melanie Morten (Stanford University and NBER) |
| Abstract: | Do new migration opportunities for rural households change the nature and extent of informal risk sharing? We experimentally document that randomly offering poor rural households subsidies to migrate leads to a 40% improvement in risk sharing in their villages. We explain this finding using a model of endogenous migration and risk sharing. When migration is risky, the network can facilitate migration by insuring that risk, which in turn crowds-in risk sharing when new migration opportunities arise. We estimate the model and ?nd that welfare gains from migration subsidies are 42% larger, compared with the welfare gains without spillovers, once we account for the changes in risk sharing. Our analysis illustrates that (a) ignoring the spillover effects on the network gives an incomplete picture of the welfare effects of migration, and (b) informal risk sharing may be an essential determinant of the takeup of new income-generating technologies. |
| Keywords: | Informal Insurance, Migration, Bangladesh, RCT |
| JEL: | D12 D91 D52 O12 R23 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2185&r=all |
| By: | Raul-Felix Hodos (Bucharest Academy of Economic Studies); Narcis Pavalascu (University of Medicine and Pharmacy of Targu Mures) |
| Abstract: | The paper aims at briefly reviewing the advantages of arbitration in relation to classical, public justice, on the one hand, and, on the other hand, of specialized arbitration (in insurance) compared to the general arbitration. Alternative dispute resolution has been received in recent decades as a necessary measure not only to relieve the courts of a significant part of the potential cases, but mainly because of the confidential and rapid nature of the procedures adopted. Technological changes brought with them new ways of communicating, and conflicts can now arise not only from lack of communication, but also from the inappropriate communication of information or because of too much information that leads to the loss of the essential data. Exiting the pre-defined formats of the participants on the insurance market must also lead to the adaptation of methods of alternative dispute resolutions, and specialized arbitration is one of the most important ways to choose. |
| Keywords: | insurance, arbitration, justice, compensation, decision |
| JEL: | K41 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:fst:wpaper:0033&r=all |
| By: | Fleming, David A.; Noy, Ilan; Pastor-Paz, Jacob; Owen, Sally |
| Abstract: | Climate change appears to be increasing the frequency and magnitude of extreme weather events, negatively affecting communities as well as posing long-term sustainability challenges to insurance (risk transfer) mechanisms. New Zealand’s public natural hazard insurer, the Earthquake Commission (EQC), covers homeowners for damage to land (and in some cases to dwellings and contents) caused by landslip, storm or flood. We comprehensively explore the EQC claims data to investigate these weather-related claims from 2000-2017. We find no clear upward trend yet emerging in the number of claims or their value. We find that the northern regions of both islands are the source of most claims, that only a handful of weather events caused a large proportion of EQC’s weather-related pay-outs, that the average property lodging a weather-related claim is located twice as close to the coast as the national average, and that properties with claims usually are cited on much steeper land than the typical property in New Zealand. We also explore the relationship between claims and socio-economic characteristics, finding that higher income neighbourhoods appear to be those most benefiting from the EQC coverage for weather events. |
| Keywords: | Environmental Economics and Policy |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:ags:motuwp:290502&r=all |
| By: | Nicoleta Radu (University of Economic Studies Bucharest, Romania); Laura Elly Naghi (University of Economic Studies Bucharest, Romania) |
| Abstract: | Over the past 20 years, there has been a significant increase in the frequency and impact of catastrophe events, which has generated concerns at the global insurance industry. Major losses (both material and human) were in the public eye, triggering government action to cover them, especially if the damage was not insured /insurable. Earthquakes, fires, landslides, or floods -all have a financial, social, economic and political impact on the affected regions. This article analyzes the experience of the latest catastrophic events (both insured and uninsured) to illustrate the lack of operational mechanisms or innovative solutions responding to such a type of exposure. |
| Keywords: | catastrophe, cat losses,mandatory insuranc |
| JEL: | G22 G28 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:fst:wpaper:0029&r=all |
| By: | Simplice A. Asongu (Yaoundé/Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa) |
| Abstract: | This study investigates the role of insurance in economic growth on a panel of forty-eight countries in Africa for the period 2004-2014. The research question the study seeks to answer is the following: what thresholds of insurance penetration positively affect economic growth in Africa? The empirical evidence is based on Generalized Method of Moments. Life insurance increases economic growth while the effect of non-life insurance is not significant. Increasing both life insurance and non-life insurance has negative net effects on economic growth. From an extended analytical exercise, 4.149 of life insurance premium (% of GDP) is the minimum critical mass required for life insurance to positively affect economic prosperity while 1.805 of non-life insurance premium (% of GDP) is the minimum threshold required for non-life insurance to positively affect economic prosperity. Thresholds are also provided from the Hansen (1999) Panel Threshold Regression technique using a balanced sample of 28 countries. |
| Keywords: | Insurance; Economic Growth |
| JEL: | I28 I30 G20 O16 O55 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:19/037&r=all |
| By: | Dellaert, B.G.C.; Johnson, E.J.; Baker, T. |
| Abstract: | Health insurance decisions are a challenge for many consumers and influence welfare, health outcomes, and longevity. Two choice architecture tools are examined that can improve these decisions: informed ordering of options (from best to worst) and choice set partitioning. It is hypothesized that these tools can improve choices by changing: (1) decision focus: the options in a set on which consumers focus their attention, and (2) decision strategy: how consumers integrate the different attributes that make up the options. The first experiment focuses on the mediating role of the hypothesized decision processes on consumer decision outcomes. The outcome results are validated further in a field study of over 40,000 consumers making actual health insurance choices and in two additional experiments. The results show that informed ordering and partitioning can reduce consumers’ mistakes by hundreds of dollars per year. They suggest that wise choice architecture interventions depend upon two factors: The quality of the user model possessed by the firm to predict consumers’ best choice and possible interactions among the ensemble of choice architecture tools. |
| Keywords: | choice architecture, decision-making, consumer decision process, health insurance choice, consumer welfare |
| Date: | 2019–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:ems:eureri:117879&r=all |
| By: | Yuchao Dong (LAREMA, UA); J\'er\^ome Spielmann (LAREMA, UA) |
| Abstract: | We prove that a large class of discrete-time insurance surplus processes converge weakly to a generalized Ornstein-Uhlenbeck process, under a suitable re-normalization and when the time-step goes to 0. Motivated by ruin theory, we use this result to obtain approximations for the moments, the ultimate ruin probability and the discounted penalty function of the discrete-time process. |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1907.01828&r=all |
| By: | aris, Aris Munandar |
| Abstract: | The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of IAIN Syekhnurjati cirebon. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate |
| Keywords: | halal pharmacy |
| JEL: | I12 I13 I14 |
| Date: | 2019–07–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94835&r=all |