nep-ias New Economics Papers
on Insurance Economics
Issue of 2020‒03‒02
fourteen 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. The “Cadillac Tax”: Driving Firms to Change Their Plans? By Nicole Dussault; Jason Bram; Maxim L. Pinkovskiy
  3. Canada; Financial Sector Assessment Program-Technical Note-Insurance Sector: Regulation and Supervision By International Monetary Fund
  4. Hours Risk and Wage Risk: Repercussions over the Life-Cycle By Robin Jessen; Johannes König
  5. Natural Disaster Insurance for Sovereigns: Issues, Challenges and Optimality By Aliona Cebotari; Karim Youssef
  6. Pricing the Pharmaceuticals when the Ability to Pay Differs: Taking Vertical Equity Seriously. By Vesa Kanniainen; Juha Laine; Ismo Linnosmaa
  7. The Social Value of Health Insurance Results from Ghana By Garcia Mandico,Silvia; Reichert,Arndt Rudiger; Strupat,Christoph
  8. Simplifying and Improving the Performance of Risk Adjustment Systems By Thomas G. McGuire; Anna L. Zink; Sherri Rose
  9. Die Grenzen der beitragsorientierten Sozialversicherungen: Grundsatzüberlegungen zum Verhältnis von Beitrags- und Steuerfinanzierung By Mackscheidt, Klaus; Maier-Rigaud, Remi
  10. Development of Utility Function for Vehicle Insurance: Comparison of Logarithmic Goal Programming Method and Conjoint Analysis Method By Natesan, Sumeetha R.; Dutta, Goutam
  11. Moral Hazard vs. Land Scarcity : Flood Management Policies for the Real World By Avner,Paolo; Hallegatte,Stephane
  12. Canada; Financial Sector Assessment Program-Technical Note-Stress Testing and Financial Stability Analysis By International Monetary Fund
  13. Switching from an inclining to a zero-level unemployment benefit profile: Good for work incentives? By Cockx, Bart; Declercq, Koen; Dejemeppe, Muriel; Inga, Leda; Van der Linden, Bruno
  14. Switching From An Inclining To A Zero-Level Unemployment Benefit Profile: Good For Work Incentives? By Bart Cockx; Koen Declercq; Muriel Dejemeppe; Leda Inga; Bruno Van der Linden

  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: 2020–01–30
  2. By: Nicole Dussault (Research and Statistics Group); Jason Bram; Maxim L. Pinkovskiy
    Abstract: Since the 1940s, employers that provide health insurance for their employees can deduct the cost as a business expense, but the government does not treat the value of that coverage as taxable income. This exclusion of employer-provided health insurance from taxable income?$248 billion in 2013, according to the Congressional Budget Office?is a huge subsidy for health spending. Many economists cite the distortionary effects of this tax subsidy as an important reason for why U.S. health care spending accounts for such a large share of the economy and why spending historically has grown so rapidly. In this blog post, we focus on a provision of the Affordable Care Act (ACA) that is intended to chip away at this tax subsidy, the colloquially labelled ?Cadillac Tax? on the priciest employer-provided health insurance plans.
    Keywords: Business Survey; Affordable Care Act; Cadillac Tax
    JEL: R1 J00
  3. By: International Monetary Fund
    Abstract: Canada has a highly developed insurance market that is important to Canada’s economy. Insurance penetration and density are as expected for an advanced economy like Canada. Canada is home to three large life-and-health (L&H) insurance conglomerates that are globally active, with only approximately a third of their business within Canada. In contrast to the L&H insurance industry, the property-and-casaulty (P&C) insurance industry is less concentrated, and foreign-owned insurance subsidiaries and branches have a significant market share. There are three mortgage insurers operating in Canada. The largest mortgage insurer is the Canada Mortgage and Housing Corporation (CMHC), which is a federal government agency that operates on a commercial basis; CMHC also has a separate social housing mandate. All mortgage insurers benefit from an explicit government guarantee; however, a deductible of 10 percent of the original principal amount of the insured mortgage applies to a lender’s claim in respect to an insurance contract written by either of the two private mortgage insurers.
    Date: 2020–01–24
  4. By: Robin Jessen; Johannes König
    Abstract: We decompose permanent earnings risk into contributions from hours and wage shocks. To distinguish between hours shocks, modeled as innovations to the marginal disutility of work, and labor supply reactions to wage shocks we formulate a life-cycle model of consumption and labor supply. Both permanent wage and hours shocks are important to explain earnings risk, but wage shocks have greater relevance. Progressive taxation strongly attenuates cross-sectional earnings risk, its life-cycle insurance impact is much smaller. At the mean, a positive hours shock of one standard deviation raises life-time income by 10%, while a similar wage shock raises it by 12%.
    Keywords: Earnings Risk, Wage Risk, Labor Supply, Progressive Taxation, Consumption Insurance
    JEL: D31 J22 J31
    Date: 2020
  5. By: Aliona Cebotari; Karim Youssef
    Abstract: Natural disasters are a source of economic risks in many countries, especially in smaller and lower-income states, and ex-ante preparedness is needed to manage the risks. The paper discusses sovereign experience with disaster insurance as a key instrument to mitigate the risks; proposes ways to judge the adequacy of insurance; and considers ways to enhance its use by vulnerable countries. The paper especially aims to inform policy decisions on disaster insurance. Through simulations of natural disasters and various insurance options, we find that sovereign decisions on optimal risk transfer involve balancing trade-offs between growth and debt, based on government risk preferences and country risk exposure. The choice of optimal insurance for smaller countries turns out to be more constrained by cost considerations due to their higher exposure, likely resulting in underinsurance; donor grants could help them achieve a more optimal protection. We also find that optimal insurance packages are those that are least costly relative to expected payouts (i.e. have the lowest insurance multiple), which are also the packages that insure less severe (more frequent) disasters.
    Keywords: Real interest rates;Social safety nets;Insurance supervision;Debt service payments;Insurance companies;natural disaster insurance,debt growth tradeoffs,optimal insurance for sovereigns.,WP,insurance package,risk transfer,ex-ante,premia,payout
    Date: 2020–01–17
  6. By: Vesa Kanniainen; Juha Laine; Ismo Linnosmaa
    Abstract: A non-trivial fraction of people cannot afford to buy pharmaceutical products at unregulated market prices. Therefore, the paper analyzes the public insurance of the pharmaceutical products in terms of price controls and the socially optimal third-degree price discrimination. It characterizes first the Ramsey pricing rule in the absence of insurance and in the case where the producer price has to cover the R&D sunk cost of the firm. Subsequently, conditions for a welfare increasing departure from Ramsey pricing are stated in terms of price regulation and insurance coverage. The resulting outcome is second best. Unlike the earlier views expressed, increased consumption of pharmaceutical products is shown to be welfare increasing in the second best world. As the optimal means-tested insurance, two alternative criteria for vertical equity are examined in the spirit of the Rawlsian view. In the first scheme, the regulator chooses a higher insurance coverage for individuals with their income below a threshold. In the second scheme, the society imputes a social value to low-income patients in terms of the value-added they produce after the treatment. Under both schemes, the threshold is determined endogenously.
    Keywords: pharmaceutical products, price regulation, public health insurance, third-degree price discrimination, equity criterion
    JEL: L10 L50
    Date: 2019
  7. By: Garcia Mandico,Silvia; Reichert,Arndt Rudiger; Strupat,Christoph
    Abstract: This paper uses the roll-out of the national health insurance in Ghana to assess the cushioning effect of coverage on the financial consequences of health shocks and resulting changes in coping behaviors. The analysis finds a strong reduction in medical expenditures, preventing households from cutting non-food consumption and causing a decrease in the volume of received remittances as well as the labor supply of healthy adult household members. Moreover, the paper presents evidence that the insurance scheme reduced the likelihood that households experiencing a health shock pulled their children out of school to put them to work. Avoidance of such costly coping mechanisms is potentially an important part of the social value of formal health insurance.
    Keywords: Health Care Services Industry,Health Insurance,Health Economics&Finance,Child Labor Law,Labor Standards,Child Labor,Labor Markets,Rural Labor Markets,Pharmaceuticals&Pharmacoeconomics,Pharmaceuticals Industry
    Date: 2019–09–11
  8. By: Thomas G. McGuire; Anna L. Zink; Sherri Rose
    Abstract: Risk-adjustment systems used to pay health plans in individual health insurance markets have evolved towards better “fit” of payments to plan spending, at the individual and group levels, generally achieved by adding variables used for risk adjustment. Adding variables demands further plan and provider-supplied data. Some data called for in the more complex systems may be easily manipulated by providers, leading to unintended “upcoding” or to unnecessary service utilization. While these drawbacks are recognized, they are hard to quantify and are difficult to balance against the concrete, measurable improvements in fit that may be attained by adding variables to the formula. This paper takes a different approach to improving the performance of health plan payment systems. Using the HHS-HHC V0519 model of plan payment in the Marketplaces as a starting point, we constrain fit at the individual and group level to be as good or better than the current payment model while reducing the number of variables called for in the model. Opportunities for simplification are created by the introduction of three elements in design of plan payment: reinsurance (based on high spending or plan losses), constrained regressions, and powerful machine learning methods for variable selection. We first drop all variables relying on drug claims. Further major reductions in the number of diagnostic-based risk adjustors are possible using machine learning integrated with our constrained regressions. The fit performance of our simpler alternatives is as good or better than the current HHS-HHC V0519 formula.
    JEL: I11 I13 I18
    Date: 2020–02
  9. By: Mackscheidt, Klaus; Maier-Rigaud, Remi
    Abstract: Die fünf deutschen Sozialversicherungszweige sind traditionell beitragsfinanziert. Bereits heute erhalten sie aber teilweise erhebliche Steuerzuschüsse. Der Beitrag diskutiert für die einzelnen Sozialversicherungszweige Für und Wider einer Ausweitung der Steuerfinanzierung. Mit einer stärkeren Steuerfinanzierung käme das Budgetprinzip der Non-Affektation zum Tragen, das ein Abwägen zwischen unterschiedlichen, rivalisierenden Verwendungen etablieren würde. Dies stellt dann eine aufgabenadäquate Finanzierung dar, wenn eine interpersonelle Umverteilung oder die Finanzierung versicherungsfremder Leistungen primär bezweckt wird. Steht hingegen eine intrapersonelle Einkommensumschichtung im Lebenslauf im Vordergrund, so ist eine Beitragsfinanzierung zur Herstellung einer generellen Äquivalenz zwischen Beitragszahlungen und Leistungsansprüchen vorzuziehen. Auf dieser Grundlage wird ein Handlungsbedarf für den Bundeshaushalt mit Blick auf Renten- und Pflegeversicherung identifiziert. Mehrausgaben in diesen Bereichen werden als unvermeidbar und als auch im politischen Entscheidungsprozess durchsetzbar angesehen, da alternde Gesellschaften eine höhere Nachfrage nach diesen Leisungen aufweisen und entsprechende Haushaltsmittel einfordern werden.
    Keywords: Sozialversicherung,Steuerfinanzierung,Beitragsfinanzierung,Non-Affektation,versicherungsfremde Leistungen,social insurance,tax-financing,contributory financing,non-affectation,non-insurance benefits
    JEL: H20 H27 H51 H55 H61
    Date: 2020
  10. By: Natesan, Sumeetha R.; Dutta, Goutam
    Abstract: The increase in competition among the vehicle insurance sectors has increased the number of policy options available in the market. This study focuses on the development of a utility function for these policies that will aid policy holders and potential investors in comparing them based on various attributes. A comparison of various vehicle insurance policies can help the customers to compare and choose a vehicle insurance that is suitable to them. Although there are several methods for developing a utility function, in this study, we intend to develop a linear utility model for vehicle insurance policies using two approaches: Logarithmic Goal Programming Model (LGPM) and Conjoint Analysis Method (CAM). We propose to compare the similarities and differences between the results obtained from LGPM and CAM approaches, used for developing the utility function for vehicle insurance policies. We also derive a choice probability of the vehicles insurance policies available in market by developing a multinomial logit choice model. We also study the consistency indicators of the respondents. We will provide useful insights for the use both approaches as research tools.
    Date: 2020–02–25
  11. By: Avner,Paolo; Hallegatte,Stephane
    Abstract: This paper investigates the costs and benefits of three ex ante flood management strategies -- risk-based insurance, zoning, and subsidized insurance -- in an urban economics framework that takes land scarcity into account. In a theoretical setting and in the absence of market failures, risk-based insurance perfectly internalizes flood risks and maximizes social welfare. However, risk-based insurance faces major technical, social, and political challenges and is not always realistic. Flood zoning and subsidized insurance are two second-best options that are easier to implement and less technically demanding. The paper explores analytically and with numerical simulations the welfare losses and distributional impacts with these second-best options, and demonstrates that total losses often remain small. Flood zoning is close to optimal when flood-prone areas are small, floods are frequent, and housing quality is low. Zoning keeps total land value unchanged but transfers wealth from landowners in flood-prone areas to landowners in safe locations. Subsidized insurance is close to optimal when a large fraction of a city is flood prone, floods are rare, and housing quality is high. And although it increases flood losses through the moral hazard effect, subsidized insurance encourages more construction, which reduces housing rents and benefits tenants regardless of where they live. Subsidized insurance transfers wealth from landowners in safe locations to landowners in flood-prone areas. When the implementation of risk-based insurance is unrealistic, as is often the case in developing countries, a combination of zoning in high-risk areas and subsidized insurance for low-risk areas might be a good alternative.
    Date: 2019–09–13
  12. By: International Monetary Fund
    Abstract: The financial system’s performance has been strong. The banking sector has enjoyed solid profitability and sizeable capital buffers. The insurance sector has remained financially sound even in the low interest rate environment. Other nonbank sectors have grown considerably, with pension funds and mutual funds dominating the institutional and retail asset management landscape. Major banks, life insurers and pension funds have expanded their footprints abroad. Canada has strong financial linkages with the United States.
    Date: 2020–01–24
  13. By: Cockx, Bart; Declercq, Koen; Dejemeppe, Muriel; Inga, Leda; Van der Linden, Bruno
    Abstract: This paper evaluates the impact on the transition to work of a policy reform in Belgium that restricted the access to a specific unemployment insurance scheme for young labor market entrants. This scheme entitles youths with no or little labor market experience to unemployment benefits after a waiting period of one year. As of 2015, the Belgian government unexpectedly scrapped benefit eligibility for youths who start the waiting period at the age of 24 or older. The reform implied a change from an inclining to a flat rate (zero-level) benefit profile. We use a difference-in-differences approach to identify the causal impact of this reform on fresh university graduates. Our main finding is that this reform only increases the transition to very short-lived jobs.
    Keywords: Youth unemployment,Unemployment insurance,Policy evaluation,Difference-in-differences
    JEL: J64 J65 J68
    Date: 2020
  14. By: Bart Cockx (Department of Economics, Ghent University); Koen Declercq (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)); Muriel Dejemeppe (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)); Leda Inga (Centre for Research in Economics and Management, University of Luxembourg); Bruno Van der Linden (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: This paper evaluates the impact on the transition to work of a policy reform in Belgium that restricted the access to a specific unemployment insurance scheme for young labor market entrants. This scheme entitles youths with no or little labor market experience to unemployment benefits after a waiting period of one year. As of 2015, the Belgian government unexpectedly scrapped benefit eligibility for youths who start the waiting period at the age of 24 or older. The reform implied a change from an inclining to a flat rate (zero-level) benefit profile. We use a difference-in-differences approach to identify the causal impact of this reform on fresh university graduates. Our main finding is that this reform only increases the transition to very short-lived jobs.
    Keywords: Youth unemployment, Unemployment insurance, Policy evaluation, Difference-in-differences
    JEL: J64 J65 J68
    Date: 2020–02–14

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