nep-ias New Economics Papers
on Insurance Economics
Issue of 2020‒02‒10
eleven papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Long Term Care Insurance with State-Dependent Preferences By Philippe De Donder; Marie-Louise Leroux
  2. How Big Is the Government Subsidy for Medicare Part D? By Alicia H. Munnell; Gal Wettstein; Wenliang Hou
  3. How Should Unemployment Insurance Vary over the Business Cycle? By Serdar Birinci; Kurt See
  4. Enhancing ICT for Insurance in Africa By Simplice A. Asongu; Nicholas M. Odhiambo
  5. The Drive toward Universal Health Coverage By Kim,Young Eun; Loayza,Norman V.
  6. A tail dependence-based MST and their topological indicators in modelling systemic risk in the European insurance sector By Anna Denkowska; Stanis{\l}aw Wanat
  7. The challenges of universal health insurance in developing countries: Evidence from a large-scale randomized experiment in Indonesia By Banerjee, Abhijit; Finkelstein, Amy; Hanna, Rema; Olken, Benjamin; Rema Hanna,; Ornaghi, Arianna
  8. Quantile Mixing and Model Uncertainty Measures By Thierry Cohignac; Nabil Kazi-Tani
  9. A mechanical and economical based framework to help decision-makers for natural hazards and malicious events impact on infrastructure prevention. By P-J. Tisserand; M. Ragueneau
  10. Governance e performance nelle imprese di assicurazioni: un’analisi bibliometrica ed una meta analisi By Luisa Anderloni; Ornella Moro; Alessandra Tanda
  11. Tighter Credit and Consumer Bankruptcy Insurance By António R. Antunes; Tiago Cavalcanti; Caterina Mendicino; Marcel Peruffo; Anne Villamil

  1. By: Philippe De Donder; Marie-Louise Leroux
    Abstract: We study the demand for actuarially fair Long Term Care (LTC hereafter) insurance in a setting where autonomous agents only care for daily life consumption while dependent agents also care for LTC expenditures. We assume that dependency decreases the marginal utility of daily life consumption. We first obtain that some agents optimally choose not to insure themselves, while no agent wishes to buy complete insurance. We then show that the comparison of marginal utility of income (as opposed to consumption) across health states depends on (i) whether agents do buy LTC insurance at equilibrium or not, (ii) the comparison of the degree of risk aversion for consumption and for LTC expenditures, and (iii) the income level of agents. Our results then offer testable implications that can explain (i) why few people buy Long Term Care insurance and (ii) the discrepancies between various empirical works when measuring the extent of state-dependent preferences for LTC.
    Keywords: long term care insurance puzzle, actuarially fair insurance, risk aversion
    JEL: D11 I13
    Date: 2019
  2. By: Alicia H. Munnell; Gal Wettstein; Wenliang Hou
    Abstract: The Medicare Part D program, launched in 2006, extended outpatient prescription drug insurance to almost all Americans over age 65. This expansion of Medicare was a response to the rapid growth of drug costs and the resulting strain on patients’ budgets. Participants in Part D generally pay monthly premiums, face an annual deductible, and make copayments on drug purchases above the deductible. These payments typically are less than the value of the drugs received. Estimating the precise size of this subsidy for any individual depends on many factors. A simpler task is estimating the size of the average subsidy that retirees can expect to receive. This brief calculates the average lifetime Part D subsidy for a typical 65-year-old in 2019. Clarifying the scale of the Part D subsidy is important for individuals, researchers, and policymakers. For individuals, the size of the subsidy that the typical beneficiary can expect to receive from Part D may impact household planning for prescription drug costs in old age. For researchers, understanding the size of the subsidy will provide a basis for assessing the large reported effects of Part D on outcomes as diverse as mortality, mental health, and retirement age. For policymakers, knowing the subsidy amount will help them evaluate reform proposals (e.g., both the Affordable Care Act and the Bipartisan Budget Act of 2018 increased the generosity of the standard Part D benefit design, while current reform proposals would address rising drug costs). The discussion proceeds as follows. The first section describes how Part D works and defines the nature of the subsidy. The second section reports on what is known about the value of Part D from existing literature. The third section presents the methods used in this analysis to calculate the lifetime amount of the Part D subsidy. The fourth section presents estimates of the subsidy under low, intermediate, and high assumptions and discusses some implications. The final section concludes that Part D represents a substantial subsidy in dollar terms for an individual entering retirement.
    Date: 2019–12
  3. By: Serdar Birinci; Kurt See
    Abstract: We study optimal unemployment insurance (UI) over the business cycle using a heterogeneous agent job search model with aggregate risk and incomplete markets. We validate the model-implied micro and macro labor market elasticities to changes in UI generosity against existing estimates, and provide an explanation for divergent empirical findings. We show that generating the observed demographic differences between UI recipients and non-recipients is critical in determining the magnitudes of these elasticities. We find that the optimal policy features countercyclical replacement rates with average generosity close to current U.S. policy but adopts longer payment durations reminiscent of European policies.
    Keywords: Business Cycles; Job Search; Unemployment Insurance
    JEL: E24 E32 J64 J65
    Date: 2019–01–01
  4. By: Simplice A. Asongu (Yaoundé/Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: This study assesses how enhancing information and communication technology (ICT) affects life insurance and non-life insurance in a panel of forty-eight African countries with data for the period 2004-2014. The adopted ICT dynamics are: mobile phone penetration, internet penetration and fixed broadband subscriptions. The empirical evidence is based on Generalized Method of Moments. The results show that enhancing mobile phone penetration and fixed broadband subscriptions has a positive net effect on life insurance consumption while enhancing fixed broadband subscriptions also has a positive net impact of on non-life insurance penetration.
    Keywords: Insurance; Information technology
    JEL: I28 I30 L96 O16 O55
    Date: 2019–01
  5. By: Kim,Young Eun; Loayza,Norman V.
    Abstract: Universal health coverage is a social goal that enables everyone to receive the quality health care they need, irrespective of ability to pay, without suffering financial hardship in the process. To move toward that goal, policy makers should address three main considerations: the population to be covered, the health services to be provided, and the financing mechanism to be used. Successful cases show that to achieve universal health coverage, a change of perspective is essential, from seeing health care benefits as a contingent good to considering them as an essential public service. While expanding the demand for health care is necessary, improving the quantity and quality of the supply of health services is essential. Getting diverse stakeholders to cooperate, making cost-efficient and people-centered choices, and ensuring fiscal sustainability are needed to expand health coverage for everyone who needs it.
    Keywords: Health Care Services Industry,Health Service Management and Delivery,Health Insurance,Disease Control&Prevention
    Date: 2018–09–01
  6. By: Anna Denkowska; Stanis{\l}aw Wanat
    Abstract: In the present work we analyze the dynamics of indirect connections between insurance companies that result from market price channels. In our analysis we assume that the stock quotations of insurance companies reflect market sentiments which constitute a very important systemic risk factor. Interlinkages between insurers and their dynamics have a direct impact on systemic risk contagion in the insurance sector. We propose herein a new hybrid approach to the analysis of interlinkages dynamics based on combining the copula-DCC-GARCH model and Minimum Spanning Trees (MST). Using the copula-DCC-GARCH model we determine the correlation coefficients in the distribution tails. Then, for each analysed period we construct MST based on these coefficients. The dynamics is analysed by means of time series of selected topological indicators of the MSTs. Our empirical results show the usefulness of the proposed approach to the analysis of systemic risk in the insurance sector. The times series obtained from the proposed hybrid approach reflect the phenomena occurring on the market. The analysed MST topological indicators can be considered as systemic risk predictors.
    Date: 2020–01
  7. By: Banerjee, Abhijit (MIT); Finkelstein, Amy (MIT); Hanna, Rema (Harvard University); Olken, Benjamin (MIT); Rema Hanna,; Ornaghi, Arianna (University of Warwick Sudarno Sumarto, TNP2K and SMERU)
    Abstract: To assess ways to achieve widespread health insurance coverage with financial solvency in developing countries, we designed a randomized experiment involving almost 6,000 households in Indonesia who are subject to a nationally mandated government health insurance program. We assessed several interventions that simple theory and prior evidence suggest could increase coverage and reduce adverse selection: substantial temporary price subsidies (which had to be activated within a limited time window and lasted for only a year), assisted registration, and information. Both temporary subsidies and assisted registration increased initial enrollment. Temporary subsidies attracted lowercost enrollees, in part by eliminating the practice observed in the no subsidy group of strategically timing coverage for a few months during health emergencies. As a result, while subsidies were in effect, they increased coverage more than eightfold, at no higher unit cost; even after the subsidies ended, coverage remained twice as high, again at no higher unit cost. However, the most intensive (and effective) intervention – assisted registration and a full one-year subsidy – resulted in only a 30 percent initial enrollment rate, underscoring the challenges to achieving widespread coverage.
    Date: 2020
  8. By: Thierry Cohignac; Nabil Kazi-Tani (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon)
    Abstract: In this paper, we introduce a new simple methodology for combining two models, which are given in the form of two probability distributions. We use convex combinations of quantile functions, with weights depending on the quantile level. We choose the weights by comparing, for each quantile level, a given measure of model uncertainty calculated for the two probability distributions that we want to combine. This methodology is particularly useful in insurance and reinsurance of natural disasters, for which there are various physical models available, along with historical data. We apply our procedure to a real portfolio of insurance losses, and show that the model uncertainty measures have a similar behavior on the set of various insurance losses that we consider. This article serves also as an introduction to the use of model uncertainty measures in actuarial practice.
    Keywords: Model combination,Model uncertainty,Quantiles,Risk management,Catastrophe models
    Date: 2019–12–11
  9. By: P-J. Tisserand (LMT - Laboratoire de Mécanique et Technologie - ENS Cachan - École normale supérieure - Cachan - CNRS - Centre National de la Recherche Scientifique, SNCF Réseau [La Plaine st Denis]); M. Ragueneau (SNCF Réseau [La Plaine st Denis])
    Abstract: Many studies in economics deal with the non-reliability cost to assess insurance fees or investment analyses, but none takes into consideration the mechanical aspect of reliability analysis. Other studies in mechanics give some tools and methods to carry out reliability analyses and fragility study. This study developed a framework where economical and mechanical considerations for infrastructure investment decision-making. The theoretical reasoning is here developed to couple mechanical reliability analyses, which are composed of fragility curves, and economical reliability analyses, which is based on resilience cost functions. This coupling is carried out with some probabilistic considerations, giving the concept of "probable cost of failure". The strength of this framework is that it can be used to analyze all possible critical components in a network with all possible natural hazards or malicious event or other undesired events which it is possible to assess its probability of occurrence. The results of the analysis are indicators of probable cost of failure of an infrastructure, which represents the insurance fee. These indicators can be computed for railway lines, for critical components, for events. This tool enables decision-makers to prioritize safety investments and to guide strategic choices. The next step of this study will be to develop smart data analysis tools, because of this framework needs and produces a lot of data, which must be smartly analyzed and presented.
    Date: 2019–10–28
  10. By: Luisa Anderloni (Università degli Studi di Milano); Ornella Moro (Università degli Studi di Sassari); Alessandra Tanda (Università di Pavia)
    Abstract: This paper provides a survey of the literature and empirical research focusing over the wide array of external and internal governance mechanisms and their effectiveness, with respect to performance and risk taking, in the particular setting of the insurance industry, over the period 1985–2019. Using Vosviewer software for a meta-literature mapping we present networks (co-authorship network and co-occurrence network) that identify top authors publishing and influential research streams. We also provide a meta-analysis of around 30 quantitative studies of corporate governance in the insurance sector which consider the relation between quanti-qualitative aspects of board composition and firm performance. The results show that in general there is a common evidence in the literature on the positive contribution of the size of the board and of the presence of independent directors on firm performance, variously measured. The networks in the insurance field of study appear not well connected, especially in relation to studies on emerging markets. This study might represent a starting point for possible future research lines aimed at clarifying the peculiarities of the governance-performance relationship in the insurance industry within a modified market and policy setting.
    Keywords: corporate governance, insurance, meta-analysis, performance, bibliometric review
    JEL: G30 G22 M21
    Date: 2019–12
  11. By: António R. Antunes; Tiago Cavalcanti; Caterina Mendicino; Marcel Peruffo; Anne Villamil
    Abstract: How does bankruptcy protection affect household balance sheet adjustments and aggregate consumption when credit tightens? Using a tractable model of unsecured consumer credit we quantify the trade-off between the insurance and the creditworthiness effects of bankruptcy in response to tighter credit. We show that bankruptcy dampens the effect of tighter credit on aggregate consumption on impact. This is because it allows borrowers to sustain consumption against severe financial distress. However, by leading to consumers’ exclusion from the credit market for a certain period, bankruptcy also reduces their ability to smooth consumption over time, implying a slower recovery. The bankruptcy code establishes how costly it is to default, and, thus, plays a crucial role in determining consumers’ bankruptcy decisions and in shaping consumption dynamics. We quantify that the 2005 BAPCPA reform, by making filing for bankruptcy more costly, worsened the negative welfare effects of the subsequent credit tightening.
    JEL: E2 E5 G1
    Date: 2019

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