nep-ias New Economics Papers
on Insurance Economics
Issue of 2020‒01‒06
eighteen papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Medicaid Expansion and the Unemployed By Thomas C. Buchmueller; Robert G. Valletta; Helen Levy
  2. Medicaid Expansion and the Unemployed By Thomas C. Buchmueller; Helen G. Levy; Robert G. Valletta
  3. Health Insurance and Mortality: Experimental Evidence from Taxpayer Outreach By Jacob Goldin; Ithai Z. Lurie; Janet McCubbin
  4. Premi Penjaminan Simpanan Berbasis Risiko: Studi Kasus LPS Indonesia By Nizar, Muhammad Afdi; Mansur, Alfan
  5. Risk Sharing within the Firm: A Primer By Marco Pagano
  6. Why unions survive: understanding how unions overcome the free-rider problem By Murphy, Richard
  7. Factors Influencing Maize Farmers’ Interest to Purchase Crop Insurance in Swaziland By Mbonane, Nobuhle D.; Makhura, M.N.
  8. On discrimination in health insurance By Thomas Boyer-Kassem; Sébastien Duchêne
  9. A behavioral decomposition of willingness to pay for health insurance By Aurélien Baillon; Aleli Kraft; Owen O'Donnell; Kim van Wilgenburg
  10. Background Risk and Insurance Take-up under Limited Liability By Gilad Sorek; T. Randolph Beard
  11. Generative Synthesis of Insurance Datasets By Kevin Kuo
  12. Eliminating Latent Discrimination: Train Then Mask By Soheil Ghili; Ben Handel; Igal Hendel; Michael D. Whinston
  13. The industrial impact of economic uncertainty shocks in Australia By Hamish Burrell; Joaquin Vespignani
  14. Shadow banking and financial stability under limited deposit insurance By Voellmy, Lukas
  15. The Determination of Public Debt under both Aggregate and Idiosyncratic Uncertainty By YiLi Chien; Yi Wen
  16. Multivariate Systemic Optimal Risk Transfer Equilibrium By Alessandro Doldi; Marco Frittelli
  17. A Stochastic Investment Model for South African Use By \c{S}ule \c{S}ahin; Shaun Levitan
  18. Pareto models for risk management By Arthur Charpentier; Emmanuel Flachaire

  1. By: Thomas C. Buchmueller (National Bureau of Economic Research; Stephen M. Ross School of Business); Robert G. Valletta (National Bureau of Economic Research; University of California; Federal Reserve Bank); Helen Levy (University of Michigan)
    Abstract: We examine how a key provision of the Affordable Care Act—the expansion of Medicaid eligibility—affected health insurance coverage, access to care, and labor market transitions of unemployed workers. Comparing trends in states that implemented the Medicaid expansion to those that did not, we find that the ACA Medicaid expansion substantially increased insurance coverage and improved access to health care among unemployed workers. We then test whether this strengthening of the safety net affected transitions from unemployment to employment or out of the labor force. We find no meaningful statistical evidence in support of moral hazard effects that reduce job finding or labor force attachment.
    Keywords: Medicaid; access to care; unemployment; insurance coverage; labor force transitions
    JEL: A12 A13 I13 I18
    Date: 2019–12–16
  2. By: Thomas C. Buchmueller; Helen G. Levy; Robert G. Valletta
    Abstract: We examine how a key provision of the Affordable Care Act--the expansion of Medicaid eligibility--affected health insurance coverage, access to care, and labor market transitions of unemployed workers. Comparing trends in states that implemented the Medicaid expansion to those that did not, we find that the ACA Medicaid expansion substantially increased insurance coverage and improved access to health care among unemployed workers. We then test whether this strengthening of the safety net affected transitions from unemployment to employment or out of the labor force. We find no meaningful statistical evidence in support of moral hazard effects that reduce job finding or labor force attachment.
    JEL: I13 I18 J18 J2 J6
    Date: 2019–12
  3. By: Jacob Goldin; Ithai Z. Lurie; Janet McCubbin
    Abstract: We evaluate a randomized pilot study in which the IRS sent informational letters to 3.9 million taxpayers who paid a tax penalty for lacking health insurance coverage under the Affordable Care Act. Drawing on administrative data, we study the effect of the intervention on taxpayers’ subsequent health insurance enrollment and mortality. We find the intervention led to increased coverage in the two years following treatment and that this additional coverage reduced mortality among middle-aged adults over the same time period. Our results provide the first experimental evidence that health insurance reduces mortality.
    JEL: H2 I12 I13
    Date: 2019–12
  4. By: Nizar, Muhammad Afdi; Mansur, Alfan
    Abstract: This research aims to: (i) identify banking performance indicators that can potentially become the basis for risk-based deposit insurance premium in Indonesia, (ii) estimate risk-based deposit insurance rates for individual banks; and (iii) approximate the incurred costs of premium for individual banks. The results show that a number of banking performance indicators that can be used as the basis for risk-based deposit insurance premium encompass such as capital adequacy ratio (CAR), loan to deposit ratio (LDR), non-performing loans, (NPL), and cost to income ratio (CIR). CAR poses the largest weight of 48.48 per cent. Another result estimates the risk-based deposit insurance rates for individual banks ranging from 0.200 to 0.352 per cent per annum. The other result reveals that big banks do not always have a better risk management compared to small banks. Also, banks with a good risk management, indicated by low scores in this research, will burden the same premium costs either based on risk-based scheme or the current flat rate scheme.
    Keywords: flat rate, deposit insurer, premium, banking restructuring, banks’ risk, risk-based
    JEL: C12 C54 G21 G28 G30
    Date: 2019–12–20
  5. By: Marco Pagano (Università di Napoli Federico II, CSEF, EEIF, CEPR and ECGI)
    Abstract: Labor income risk is key to the welfare of most people. This paper starts by asking why this risk is mainly insured “within the firm” and not by financial markets, and what restricts the extent of such risk sharing. It identifies four main constraining factors: public unemployment insurance, moral hazard on the workers’ side, limited commitment by firms, and workers’ wage bargaining power. These factors explain three empirical regularities: (i) family firms provide more employment insurance than nonfamily firms; (ii) the former pay lower real wages, and (iii) firms provide less employment insurance where public unemployment benefits are more generous. The paper also explores the connection between risk sharing and firms’ capital structure: highly leveraged firms have more unstable employment, so that greater leverage calls for high wages to compensate employees for job risk; nevertheless, firms may want to lever up strategically in order to offset the bargaining power of labor unions. Hence, the distributional conflict between shareholders and workers may limit risk sharing within the firm. By contrast, bondholders and workers are not necessarily in conflict, as both are harmed by firms’ risk-taking. Finally, firms may also insure employees against the risk due to uncertainty about their own talent, but their capacity to do so is constrained by the fact that, in the presence of labor market competition, talented employees require high wages, making uncertainty about talent uninsurable. Lastly, the paper offers evidence that risk sharing within firms has declined steadily in recent decades and discusses possible explanations.
    Keywords: risk sharing, insurance, unemployment, social security, wage, implicit labor contracts, family firms.
    JEL: D21 D22 D80 G32 G39 H55 J63 J65 M51 M52
    Date: 2019–12–19
  6. By: Murphy, Richard
    Abstract: This paper provides evidence for why individuals join unions instead of free-riding. I model membership as legal insurance. To test the model, I use the incidence of news stories concerning allegations against teachers in the UK as a plausibly exogenous shock to demand for such insurance. I find that, for every five stories occurring in a region, teachers are 2.2 percentage points more likely to be members in the subsequent year. These effects are larger when teachers share characteristics with the news story and can explain 45 percent of the growth in teacher union membership between 1992 and 2010.
    Keywords: unions; teachers; media; insurance
    JEL: J51 J45 J32
    Date: 2019–06
  7. By: Mbonane, Nobuhle D.; Makhura, M.N.
    Keywords: Agricultural Finance, Risk and Uncertainty
    Date: 2019–09
  8. By: Thomas Boyer-Kassem (MAPP - Métaphysique allemande et philosophie pratique - Université de Poitiers); Sébastien Duchêne (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier)
    Abstract: In many countries, private health insurance companies are allowed to vary their premiums based on some information on individuals. This practice is intuitively justified by the idea that people should pay the premium corresponding to their own known risk. However, one may consider this as a form of discrimination or wrongful differential treatment. Our goal in this paper is to assess whether profiling is ethically permissible in health insurance. We go beyond the existing literature in considering a wide range of parameters, be they genetic, non-genetic, or even non-medical such as age or place of living. Analyzing several ethical concerns, and tackling the difficult question of responsibility, we argue that profiling is generally unjust in health insurance.
    Date: 2019
  9. By: Aurélien Baillon (Erasmus University Rotterdam); Aleli Kraft (University of the Philippines Diliman); Owen O'Donnell (Erasmus University Rotterdam); Kim van Wilgenburg (Erasmus University Rotterdam)
    Abstract: Despite widespread exposure to substantial medical expenditure risk in low-income populations, health insurance enrollment is typically low. This is puzzling from the perspective of expected utility theory. To help explain it, this paper introduces a decomposition of the stated willingness to pay (WTP) for insurance into its fair price and three behavioral deviations from that price due to risk perception and risk attitude consistent with prospect theory, plus a residual. To apply this approach, we elicit WTP, subjective distributions of medical expenditures and risk attitude (utility curvature and probability weighting) from Filipino households in a nationwide survey. We find that the mean stated WTP of the uninsured is less than both the actuarially fair price and the subsidized price at which public insurance is offered. This is not explained by downwardly biased beliefs: both the mean and the median subjective expectation are greater than the subsidized price. Convex utility in the domain of losses pushes mean WTP below the fair price and the subsidized price, and the transformation of probabilities into decision weights depresses the mean further, at least using one of two specific decompositions. WTP is reduced further by factors other than risk perception and attitude.
    Keywords: Health insurance, willingness to pay, subjective probability, prospect theory, medical expense
    JEL: I13 D84
    Date: 2019–11–17
  10. By: Gilad Sorek; T. Randolph Beard
    Abstract: We study the effect of a non-insurable background risk (BGR) on insurance take-up choices over insurable risks made by risk-averse agents under limited liability laws. This economic environment applies, for example, to the consumer’s decision to purchase medical insurance in the face of non-insurable income risk under limited liability provided by bankruptcy. We consider two types of BGR - a wealth deteriorating risk and a mean-preserving risk. We show that the magnitude of both BGR types has a non-monotonic effect on the rate of uninsured consumers. This is in contrast with the standard monotonic effect of background risk on the demand for insurance, obtained for risk-averse agents under full liability.
    Keywords: Insurance take-up; Bankruptcy; Background Risk
    JEL: I38
    Date: 2019–12
  11. By: Kevin Kuo
    Abstract: One of the impediments in advancing actuarial research and developing open source assets for insurance analytics is the lack of realistic publicly available datasets. In this work, we develop a workflow for synthesizing insurance datasets leveraging state-of-the-art neural network techniques. We evaluate the predictive modeling efficacy of datasets synthesized from publicly available data in the domains of general insurance pricing and life insurance shock lapse modeling. The trained synthesizers are able to capture representative characteristics of the real datasets. This workflow is implemented via an R interface to promote adoption by researchers and data owners.
    Date: 2019–12
  12. By: Soheil Ghili (Cowles Foundation, Yale University); Ben Handel (Department of Economics, UC Berkeley); Igal Hendel (Department of Economics, Northwestern University); Michael D. Whinston (Department of Economics and Sloan School of Management, M.I.T)
    Abstract: Reclassiï¬ cation risk is a major concern in health insurance where contracts are typically one year in length but health shocks often persist for much longer. We use rich individual-level medical information from the Utah all-payer claims database to empirically study one possible solution: long-term insurance contracts. We characterize optimal long-term contracts with one-sided commitment theoretically, derive the contracts that are optimal for consumers in Utah, and assess the welfare level that a full implementation of these contracts could achieve relative to several key benchmarks. We ï¬ nd that dynamic contracts perform very well for the majority of the population, for example, eliminating over 94% of the welfare loss from reclassiï¬ cation risk for individuals who arrive on the market at age 25 in good health. However, dynamic contracts instead provide very little beneï¬ t to the worst pre-age-25 health risks. Their value is also substantially lower for consumers whose income growth with age is relatively high. With pre-age-25 insurance in place, consumers with flat net income prefer dynamic contracts to an ACA-like environment, but consumers with steeper income proï¬ les prefer the ACA-like environment. Overall, we show that there are scenarios in which dynamic contracts can provide substantial welfare beneï¬ ts, but that complementary policies are crucial for unlocking these beneï¬ ts.
    JEL: L5 I1 D0
    Date: 2019–12
  13. By: Hamish Burrell; Joaquin Vespignani
    Abstract: This study establishes the first empirical evidence of the impact of economic uncertainty shocks on industry-level investment, output and employment in Australia. We find the Construction and Financial and Insurance Services industries are the most impacted by a shock to economic uncertainty. Statistically significant declines are observed for investment, output and employment in the Construction industry, and in terms of magnitude, the declines in output and employment are the largest across all industries studied. Likewise, the Financial and Insurance Services industry experiences declines across investment, output and employment, and undergoes the largest decline in investment in comparison to all other industries examined. Economic uncertainty explains the most substantial portion of the variation in Financial and Insurance Services investment and output, highlighting the detrimental effect it has on the Financial and Insurance Services industry. Furthermore, Health Care and Social Assistance output and Professional, Scientific and Technical Services investment experience considerable declines, and in contrast, Public Administration and Safety is shown to be the least impacted industry.
    Keywords: Economic Uncertainty, Economic Uncertainty Shocks, SVAR, Australian economy, Australian Industries
    JEL: C10 C32 E00 E30
    Date: 2019–12
  14. By: Voellmy, Lukas
    Abstract: I study the relation between shadow banking and financial stability in an economy in which banks are susceptible to self-fulfilling runs and in which government-backed deposit insurance is limited. Shadow banks issue only uninsured deposits while commercial banks issue both insured and uninsured deposits. The effect of shadow banking on financial stability is ambiguous and depends on the (exogenous) upper limit on insured deposits. If the upper limit on insured deposits is high, then the presence of a shadow banking sector is detrimental to financial stability; shadow banking creates systemic instability that would not be present if all deposits were held in the commercial banking sector. In contrast, if the upper limit on insured deposits is low, then the presence of a shadow banking sector is beneficial from a financial stability perspective; shadow banks absorb uninsured (and uninsurable) deposits from the commercial banking sector, thereby shielding commercial banks from runs. While runs may occur in the shadow banking sector, the situation without shadow banks and a larger amount of uninsured deposits held at commercial banks is worse. JEL Classification: E44, G21, G28
    Keywords: bank runs, deposit insurance, financial intermediation, shadow banking
    Date: 2019–12
  15. By: YiLi Chien; Yi Wen
    Abstract: We analyze the Ramsey planner's decisions to finance stochastic public expenditures under incomplete insurance markets for idiosyncratic risk. We show analytically that whenever the market interest rate lies below the time discount rate, the Ramsey planner has a dominant incentive to increase debt to meet the private sector's demand for full self-insurance regardless of the relative size of aggregate shocks---suggesting a departure from tax smoothing. However, if a full self-insurance Ramsey allocation is infeasible in the absence of a government debt limit, an interior or bounded Ramsey equilibrium does not exist. The strong incentives for the Ramsey planner to smooth both individual consumption (via increasing public debt) and aggregate consumption (via tax smoothing) imply that (i) the long-run Ramsey equilibrium is characterized by full self-insurance and constant taxes if state-contingent bonds are available and (ii) when state-contingent bonds are not available, the government's attempt to balance the competing incentives between tax smoothing and individual consumption smoothing---even at the cost of extra tax distortion---implies a bounded stochastic unit root component in optimal taxes and in the bond supply. In all cases considered in this paper, a sufficiently high average level of public debt (financed by distortionary taxation) to support full self-insurance is desirable and welfare improving. Therefore, adding a liquidity premium into the value of government bonds via incomplete financial markets can bring the theory of public finance into closer conformity with realty.
    Keywords: Optimal Public Debt; Tax Smoothing; Ramsey Problem; Incomplete Markets
    JEL: E13 E62 H21 H30
    Date: 2019–12–05
  16. By: Alessandro Doldi; Marco Frittelli
    Abstract: A Systemic Optimal Risk Transfer Equilibrium (SORTE) was introduced in "Systemic Optimal Risk Transfer Equilibrium" for the analysis of the equilibrium among financial institutions or in insurance-reinsurance markets. A SORTE conjugates the classical B\"uhlmann's notion of an equilibrium risk exchange with a capital allocation principle based on systemic expected utility optimization. In this paper we extend such notion to the case in which the value function to be optimized has two components, one being the sum of the single agents' utility functions, the other consisting of a truly systemic component. The latter could be either enforced by an external regulator or be agreed on by the participants in the market. Technically, the extension of SORTE to the new setup requires developing a theory for multivariate utility functions and selecting at the same time a suitable framework for the duality theory. Conceptually, this more general framework allows us to introduce and study a Nash Equilibrium property of the optimizer. We prove existence, uniqueness, Pareto optimality and the Nash Equilibrium property of the newly defined Multivariate Systemic Optimal Risk Transfer Equilibrium.
    Date: 2019–12
  17. By: \c{S}ule \c{S}ahin; Shaun Levitan
    Abstract: The need for stochastic modelling is on the rise globally in the pension, life insurance and investment industries due to both an increase in regulation and a natural requirement for stochastic analysis in modelling exercises. Research in the area of stochastic models or recently called economic scenario generators for actuarial use in South Africa has largely been limited. The seminal papers in this regard have a number of practical limitations. In this paper, we propose a stochastic investment model for South Africa by modelling price inflation rates, share dividends, long term and short-term interest rates for the period 1960-2018 and inflation-linked bonds for the period 2000-2018. Possible by-directional relations between the economic series have been considered and the model is designed to provide long-term forecasts that should find application in long-term modelling for both pension funds and life insurance companies.
    Date: 2019–12
  18. By: Arthur Charpentier; Emmanuel Flachaire
    Abstract: The Pareto model is very popular in risk management, since simple analytical formulas can be derived for financial downside risk measures (Value-at-Risk, Expected Shortfall) or reinsurance premiums and related quantities (Large Claim Index, Return Period). Nevertheless, in practice, distributions are (strictly) Pareto only in the tails, above (possible very) large threshold. Therefore, it could be interesting to take into account second order behavior to provide a better fit. In this article, we present how to go from a strict Pareto model to Pareto-type distributions. We discuss inference, and derive formulas for various measures and indices, and finally provide applications on insurance losses and financial risks.
    Date: 2019–12

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