nep-ias New Economics Papers
on Insurance Economics
Issue of 2020‒03‒30
nine papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Long-Term Health Insurance: Theory Meets Evidence By Juan Pablo Atal; Hanming Fang; Martin Karlsson; Nicolas R. Ziebarth
  2. Housing in Medicaid: Should it Really Change? By Bertrand Achou
  3. Austria; Publication of Financial Sector Assessment Program Documentation-Technical Note on Insurance Sector—Regulation, Supervision, Recovery, and Resolution Regime Prospects By International Monetary Fund
  4. Indemnity Payments in Agricultural Insurance: Risk Exposure of EU States By Osman Gulseven; Kasirga Yildirak
  5. Risk-Shifting, Regulation, and Government Assistance By Padma Sharma
  6. Comparative Profitability of Product Disclosure Statements By Burkovskaya, Anastasia; Li, Jian
  7. 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
  8. Fiscal Policy during a Pandemic By Miguel Faria-e-Castro
  9. Volatility-Reducing Biodiversity Conservation Under Strategic Interactions By Emmanuelle Augeraud-Véron; Giorgio Fabbri; Katheline Schubert

  1. By: Juan Pablo Atal (University of Pennsylvania); Hanming Fang (University of Pennsylvania); Martin Karlsson (University of Duisburg-Essen); Nicolas R. Ziebarth (Cornell University)
    Abstract: To insure policyholders against contemporaneous health expenditure shocks and future reclassi-fication risk, long-term health insurance constitutes an alternative to community-rated short-term contracts with an individual mandate. Relying on unique claims panel data from a large private insurer in Germany, we study a real-world long-term health insurance application with a life-cycle perspective. We show that German long-term health insurance (GLTHI) achieves substantial wel-fare gains compared to a series of risk-rated short-term contracts. Although, by its simple design, the premium setting of GLTHI contract departs significantly from the optimal dynamic contract, surprisingly we only find modest welfare differences between the two. Finally, we conduct coun-terfactual policy experiments to illustrate the welfare consequences of integrating GLTHI into a system with a “Medicare-like” public insurance that covers people above 65.
    Keywords: Long-Term Health Insurance; Individual Private Health Insurance; Health Care Re-form
    JEL: G22 I11 I18
    Date: 2020–03–12
  2. By: Bertrand Achou
    Abstract: Housing is mostly exempted from Medicaid and Supplemental Social Insurance means tests. Reforms of this special treatment have been debated but little is known about its costs, benefits and redistributive implications. I estimate a life-cycle model of single retirees accounting for this exemption. The model shows that the homestead exemption explains important patterns of Medicaid recipiency, that it is highly valued and may be of limited cost as it incentivizes saving and reduces Medicaid recipiency at older ages. The model also predicts that removing the homestead exemption or enforcing more systematically estate recovery programs would reduce redistribution towards lower-income retirees.
    Keywords: Medicaid, Housing Savings, Retirement, Life-Cycle
    JEL: H51 I13
    Date: 2020
  3. By: International Monetary Fund
    Abstract: The insurance sector is experiencing low growth, stemming mainly from life business and a prolonged low-interest-rate environment. While the total assets have increased in nominal terms, it has underperformed GDP growth. Some segments, in particular single-premium products in life insurance, are suffering from material declines of premiums. Insurers are coping with the challenges with large-scale mergers domestically and international expansions. The duration gap between asset and liabilities was one of the highest among the European peers. The average guaranteed rates remain high, while the investment returns continue to decline.
    Date: 2020–03–02
  4. By: Osman Gulseven; Kasirga Yildirak
    Abstract: This study estimates the risk contributions of individual European countries regarding the indemnity payments in agricultural insurance. We model the total risk exposure as an insurance portfolio where each country is unique in terms of its risk characteristics. The data has been collected from the recent surveys conducted by the European Commission and the World Bank. Farm Accountancy Data Network is used as well. 22 out of 26 member states are included in the study. The results suggest that the EuroMediterranean countries are the major risk contributors. These countries not only have the highest expected loss but also high volatility of indemnity payments. Nordic countries have the lowest indemnity payments and risk exposure.
    Date: 2020–03
  5. By: Padma Sharma
    Abstract: This paper examines an episode when policy response to a financial crisis effectively incentivized financial institutions to reallocate their portfolios toward safe assets. Following a shift to a regime of enhanced regulation and scaled-down public assistance during the savings and loan crisis in 1989, I find that thrifts with a high probability of failure increased their composition of safe assets relative to thrifts with a low probability of failure. The findings also show a shift to safe assets among stock thrifts relative to mutual thrifts, thereby providing evidence of risk-shifting from equity-holders to debt-holders of stock thrifts prior to the regulatory reforms. These findings suggest that for recent policies aimed at reducing moral hazard to succeed (such as the Orderly Liquidation Authority under Title II of the Dodd-Frank Act), credible signals around government assistance should be provided to shareholders of financial institutions. To identify the effect of the policy change I develop a new Bayesian estimation method for causal studies.
    Keywords: Bank Failures; Bailouts; Moral Hazard; Risk-shifting; Bayesian Inference; Savings and loans crisis; Maskov Chain Monte Carlo (MCMC); Federal Savings and Loans Insurance Corporation (FSLIC); Resolution Trust Corporation (RTC)
    JEL: C11 C31 C33 G21 G33 G38
    Date: 2019–11–26
  6. By: Burkovskaya, Anastasia; Li, Jian
    Abstract: In insurance industry, product disclosure statements (PDSs) consist of descriptions of uncertain contingencies by the insurance plans (e.g., “hospital coverage”, “dental coverage”, etc.) and are often very different. In this paper, we model PDSs as information partitions of the state space, which can influence how a consumer perceives the structure of her choice problem and hence her deductible choices. We study a model of an insurance company that aims to promote profit by designing the framing of its PDS. We compare the company’s profits under two PDSs, one of which is coarser than the other. Our main results show that under simple conditions, the PDS consisting of finer partitions of the more expensive states is more profitable.
    Keywords: insurance demand, framing effect, state aggregation, persuasion, behavioural industrial organization
    Date: 2020–02
  7. By: Bart Cockx; Koen Declercq; Muriel Dejemeppe; Leda Inga; Bruno Van der Linden
    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
  8. By: Miguel Faria-e-Castro
    Abstract: I use a dynamic stochastic general equilibrium model to study the effects of the 2019-20 coronavirus pandemic in the United States. The pandemic is modeled as a large negative shock to the utility of consumption of contact-intensive services. General equilibrium forces propagate this negative shock to the non-services and financial sectors, triggering a deep recession. I use a calibrated version of the model to analyze different types of fiscal policies: (i) government purchases, (ii) income tax cuts, (iii) unemployment insurance benefits, (iv) unconditional transfers, and (v) liquidity assistance to services firms. I find that UI benefits are the most effective tool to stabilize income for borrowers, who are the hardest hit, while savers favor unconditional transfers. Liquidity assistance programs are effective if the policy objective is to stabilize employment in the affected sector.
    Keywords: fiscal policy; financial stability; pandemic
    JEL: E6 G01 H0
    Date: 2020–03
  9. By: Emmanuelle Augeraud-Véron (Université de Bordeaux, France); Giorgio Fabbri (Univ. Grenoble Alpes, France); Katheline Schubert (Paris School of Economics, Université Paris 1 Panthéon-Sorbonne, France)
    Abstract: We study a model of strategic competition among farmers for land use in an agricultural economy. Each agent can take possession of a part of the collective forest land and convert it to farming. Unconverted forest land helps preserving biodiversity, which contributes to reducing the volatility of agricultural production. Agents' utility is given in terms of a Kreps Porteus stochastic differential utility capable of disentangling risk aversion and aversion to fluctuations. We characterize the land used by each farmer and her welfare at the Nash equilibrium, we evaluate the over-exploitation of the land and the agents' welfare loss compared to the socially optimal solution and we study the drivers of the inefficiencies of the decentralized equilibrium. After characterizing the value of biodiversity in the model, we use an appropriate decomposition to study the policy implications of the model by identifying in which cases the allocation of property rights is preferable to the introduction of a land conversion tax.
    Keywords: Biodiversity, insurance value,land conversion, recursive preferences, stochastic differential games
    JEL: Q56 Q58 Q10 Q15 O13 O20 C73 D62
    Date: 2020–02–28

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