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on Insurance Economics |
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Issue of 2020‒06‒15
seventeen papers chosen by Soumitra K. Mallick Indian Institute of Social Welfare and Business Management |
| By: | Karine Lamiraud (Essec Business School); Pierre Stadelmann |
| Abstract: | Our article deals with pricing strategies in Swiss health insurance markets and focuses on the relationship between basic and supplementary insurance. We analyzed how firms' pricing strategies (i.e., pricing of basic and supplementary products) can create switching costs in basic health insurance markets, thereby preventing competition in basic insurance from working properly. More specifically, using unique market and survey data, we investigated whether firms use bundling strategies or supplementary products as low-price products to attract and retain basic insurance consumers. To our knowledge, this is the first paper to analyze these pricing strategies in the context of insurance/health insurance. We found no evidence of bundling in the Swiss setting. We did however observe that firms used low-price supplementary products that contributed to lock in consumers. A majority of firms offered at least one of such product at a low price. None offered low-price products in both basic and supplementary markets. Low-price insurance products differed across firms. When buying a lowprice supplementary product, consumers always bought their basic contract from the same firm. Furthermore, those who opted for low-price supplementary products were less likely to declare an intention to switch basic insurance firms in the near future. This result was true for all risk category levels. |
| Keywords: | Managed Competition,Swiss Health Care Systems,Pricing,Consumer Inertia,Switching Costs,Supplementary Insurance,low-price supplementary product,Bundling |
| Date: | 2020–05–13 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02635107&r=all |
| By: | Marios Michaelides (University of Cyprus); Peter Mueser (University of Missouri, and IZA); Jeffrey Smith (University of Wisconsin, NBER, IZA, CESifo, and HCEO) |
| Abstract: | We present experimental evidence on the effects of four U.S. reemployment programs for youth Unemployment Insurance (UI) recipients during the Great Recession. The three programs that emphasized monitoring and service referrals reduced UI receipt but had minimal effects on employment and earnings; these programs mainly induced the early exit of participants. The fourth program, which combined mandatory job counseling with monitoring, caused the largest reductions in UI receipt and clearly increased employment and earnings. Both early participant exits and effective job counseling underlie these impacts. We conclude that policymakers should require job counseling for youth UI recipients during recessions. |
| Keywords: | Youth, Great Recession, REA, WPRS, job counseling, active labor market policies, unemployment, Unemployment Insurance, program evaluation |
| JEL: | J6 H4 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:umc:wpaper:2003&r=all |
| By: | Nicola Gennaioli; Rafael La Porta; Florencio Lopez-de-Silanes; Andrei Shleifer |
| Abstract: | We assemble and analyze a new data set of homeowner insurance claims from 28 independently operated country subsidiaries of a multinational insurance company. A fundamental feature of the data is that such claims are often disputed, and lead to rejections or lower payments. We propose a new model of insurance, in which consumers can make invalid claims and firms can deny valid claims. In this environment, trust and honesty are critical factors that shape insurance contracts and the payment of claims, especially when the disputed amounts are too small for courts. We characterize equilibrium insurance contracts, and show how they depend on the quality of the legal system and the level of trust. We then investigate the incidence of claims, disputes and rejections of claims, and payment of claims in our data, as well as the cost and pricing of insurance. The evidence is consistent with the centrality of trust for insurance markets, as predicted by the model. |
| JEL: | D23 G22 L14 Z13 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27189&r=all |
| By: | Nathalie Havet (Observatoire français des conjonctures économiques); Xavier Joutard (Observatoire français des conjonctures économiques); Alexis Pénot (École normale supérieure - Lyon (ENS Lyon)) |
| Abstract: | Le dispositif des activités réduites vise à atténuer les effets désincitatifs du système d’allocation chômage en permettant aux demandeurs d’emploi de combiner activité rémunérée et recherche d’emploi tout en cumulant, au moins partiellement, la rémunération de son activité et ses allocations chômage. Notre revue de la littérature théorique et empirique cherche à savoir si ce dispositif, avec des incitations nécessairement limitées à l’exercice d’une activité temporaire ou à temps partiel, peut favoriser une insertion durable sur le marché du travail. Elle montre que les effets théoriques attendus sur les trajectoires professionnelles des demandeurs d’emploi et sur la qualité des emplois potentiellement retrouvés sont ambigus et méritent d’être tranchés empiriquement. Les études empiriques nationales et internationales mettent alors en évidence qu’il est nécessaire de distinguer les effets à court terme des effets à long terme et qu’il existe une forte hétérogénéité des impacts entre demandeurs d’emploi. Néanmoins, en France, l’activité réduite semble globalement un accélérateur de l’accès à l’emploi durable mais avec des effets relativement modestes. En outre, elle ne semble pas améliorer ni dégrader la qualité de l’emploi retrouvé. |
| Keywords: | Durée de chômage; Assurance-chômage; Marché du travail segmenté; Emplois temporaires; Transitions professionnelles; Unemployment duration; Unemployment insurance; Segmented labor markets; Temporary jobs; Job transitions |
| JEL: | J42 J64 J65 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/1v5orglviq8epaecq1buersvk5&r=all |
| By: | Christian Dehm; Thai Nguyen; Mitja Stadje |
| Abstract: | We examine an expected utility maximization problem with an uncertain time horizon, a classical example being a life insurance contract due at the time of death. Life insurance contracts usually have an option-like form leading to a non-concave optimization problem. We consider general utility functions and give necessary and sufficient optimality conditions, deriving a computationally tractable algorithm. A numerical study is done to illustrate our findings. Our analysis suggests that the possible occurrence of a premature stopping leads to a reduced performance of the optimal portfolio compared to a setting without time-horizon uncertainty. |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2005.13831&r=all |
| By: | Gründl, Helmut; Regele, Fabian |
| Abstract: | This Policy Letter outlines a pandemic insurance solution through a pandemic-related 'Insurance Linked Bond'. It would be originated by governments, with a principal amount to cover significant costs resulting from a pandemic. These bonds, which would be traded on a secondary market, generate a risk-adequate return for private and institutional investors that is financed through the insurance premiums paid by the public domain. In case of a pre-defined pandemic trigger event, the principal of the bond becomes available for the originating governments to cover pandemic-related costs. Through this approach, governments can insure themselves against future pandemic-related risks, while funding comes primarily from private and institutional investors. |
| Keywords: | Covid-19-Crisis,catastrophe bond,public private partnership,pandemic insurance |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safepl:86&r=all |
| By: | Anand, Mohit; Miao, Ruiqing; Khanna, Madhu |
| Abstract: | This paper investigates the interaction of crop insurance and contracts in improving the risk management of farmers who produce bioenergy crops. Numerical simulation is conducted for 1,919 U.S. counties east of the 100th Meridian that have yield data for corn and for at least one bioenergy crop yield of miscanthus and switchgrass. County-level yield data, both on low quality land and high quality land, are simulated by using DayCent model, and Copula approach is used to estimate a joint yield-price distribution for each county. We model a representative farmers’ optimal choice problem of whether to use their land to grow conventional crops or to use their land for production of bioenergy crops under one of three different contract choices offered by the biorefinery. The terms of these contracts are determined in such a manner that they jointly maximize the net benefits of the refinery and farmers. We do this joint optimization in two scenarios: ‘With insurance’ and ‘Without insurance’ for bioenergy crops to see how presence of crop insurance for bioenergy crops will affect the optimal contract design and will affect land allocation under a certain contract type. |
| Keywords: | Crop Production/Industries, Risk and Uncertainty |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea19:303744&r=all |
| By: | Claude Lefèvre (ULB - Département de Mathématique [Bruxelles] - ULB - Université Libre de Bruxelles [Bruxelles]); Stéphane Loisel (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon); Pierre Montesinos (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon) |
| Abstract: | This paper is concerned with properties of Beta-unimodal distributions and their use to assess the basis risk inherent to index-based insurance or reinsurance contracts. To this extent, we first characterize s-convex stochastic orders for Beta-unimodal distributions in terms of the Weyl fractional integral. We then determine s-convex extrema for such distributions , focusing in particular on the cases s = 2, 3, 4. Next, we define an Enterprise Risk Management framework that relies on Beta-unimodality to assess these hedge imperfections , introducing several penalty functions and worst case scenarios. Some of the results obtained are illustrated numerically via a representative catastrophe model. |
| Keywords: | s-convex extrema,s-convex stochas- tic orders,Beta-unimodality,Basis risk,Parametric index,Risk management |
| Date: | 2020–05–18 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02611208&r=all |
| By: | Guo, Audrey |
| Abstract: | This paper investigates whether and to what extent state-level differences in business taxes influence the location decisions and labor demand of multi-establishment firms. In the United States each state administers its own unemployment insurance (UI) program, and cross-state variation leads to significant differences in the potential UI tax costs faced by employers in different states. Using US Census data on the locations of multi-state manufacturing firms for identification, I find that high tax plants were more likely to exit during economic downturns, and less likely to hire during the recovery. Moving a given plant's outside option from a high tax state to a low tax state would increase its likelihood of exit by 20% during the Great Recession. These findings suggest that decentralized administration of UI taxes may contribute to jobless recoveries and additional misallocation in the economy. |
| Keywords: | Unemployment Insurance; Taxation; Labor Demand; Firm Behavior |
| JEL: | D22 H25 H71 J23 J65 J68 |
| Date: | 2020–04–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:97919&r=all |
| By: | Adam Pilny; Felix Rösel |
| Abstract: | Appointing or electing professionals to be public officials is a double-edged sword. Experts can use their rich knowledge to implement reforms, but they can also favor their own profession. In this study, we compare physician-trained state health ministers to ministers of other professions in Germany during 1955-2017. German state health ministers have great power to determine hospital capacities and infrastructure. Our results show that physiciantrained health ministers increase hospital capacities, capital, and funding by the statutory health insurance (SHI). This prompts hospitals to hire more physicians, but with little impact on hospital outputs. As a result, total factor productivity (TFP) growth in hospital care slows down substantially under physician-ministers. At the same time, job satisfaction of hospital doctors tends to increase. We conclude that, in particular, the medical profession benefits from medical doctors in office. |
| Keywords: | Hospitals, health minister, productivity, TFP, favoritism, profession, technocracy |
| JEL: | D72 I11 I18 O47 P16 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ifowps:_328&r=all |
| By: | Han Ye |
| Abstract: | I estimate the effect of additional pension benefits on women’s retirement decisions by examining a German pension subsidy program. The subsidies have a kinked relationship with the recipients’ past pension contributions, creating a sharply different slope of benefits for similar women on either side of the kink point. I find that a 100 euro increase in the monthly benefit induces female recipients to claim their pensions six months earlier. Recipients also adjust their labor supply by using unemployment insurance (UI) as a stepping stone to retirement and by reducing time spent in marginal employment. A back-of-the-envelope calculation suggests that the ratio of behavioral to mechanical costs for this subsidy program is 0.25, which is smaller than that of other income support programs. |
| Keywords: | pension subsidy, pension generosity, retirement, regression kink design |
| JEL: | H55 J18 J21 J26 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_177&r=all |
| By: | Alexandra de Jong; Alin Draghiciu; Linda Fache Rousová; Alessandro Fontana; Elisa Letizia (EIOPA) |
| Abstract: | Insures use derivatives to hedge risks from investments portfolios and underwriting, but this exposes them to liquidity risk. This study uses Solvency II reporting data to assess to what extent European (re-)insurers would be able to meet potential variation margin calls on interest rate swaps portfolios. Interest rate swaps pose the largest share of (re-)insurers derivatives’ portfolios. We consider several shifts to the yield curve, calculate the corresponding variation margin calls, compare them to liquid assets available to insurers and derive the potential liquidity shortfalls. Our results reveal that there may be a liquidity risk for (re-)insurers stemming from the use of derivatives, in particular interest rate swaps (IRS). This reflects both high IRS exposure and insufficient holdings of cash and liquid assets. Based on the analysis presented in this article we conclude that some insurers have not yet adapted their asset allocation and liquidity management practices to the (new) requirements on margining practices which have been introduced as part of the OTC derivatives reform. |
| Keywords: | insurance, variation margin, liquidity |
| JEL: | G11 G12 G22 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:eio:thafsr:16&r=all |
| By: | Martin Gaynor; Nirav Mehta; Seth Richards-Shubik |
| Abstract: | We study physician agency and optimal payment policy in the context of an expensive medication used in dialysis care. Using Medicare claims data we estimate a structural model of treatment decisions, in which physicians differ in their altruism and marginal costs, and this heterogeneity is unobservable to the government. In a novel application of nonlinear pricing methods, we theoretically characterize the optimal unrestricted contract in this screening environment with multidimensional heterogeneity. We combine these results with the estimated model to construct the optimal contract and simulate counterfactual outcomes. The optimal contract is a flexible fee-for-service contract, which pays for reported treatments but uses variable marginal payments instead of constant reimbursement rates, resulting in substantial health improvements and reductions in costs. Our structural approach also yields important qualitative findings, such as rejecting the optimality of any linear contract, and may be employed more broadly to analyze a variety of applications. |
| JEL: | D86 H51 I11 I13 I18 L14 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27172&r=all |
| By: | Rasmus Fatum; Takahiro Hattori; Yohei Yamamoto |
| Abstract: | We consider if the Chinese accumulation of reserves is associated with unintended consequences in the form of increased private sector risk taking. Using sovereign credit default swap spreads and stock index prices as indicators of risk taking, we provide evidence to suggest that as reserve holdings increase, so does the willingness of the private sector to take on more risk. This is an important finding that adds credence to the suggestion that insurance through costly reserves, to be used in the event of a crisis, may lead to private sector actions that in and of themselves make it more likely that this insurance will be used. |
| Keywords: | International reserves; risk taking; China |
| JEL: | F31 G15 |
| Date: | 2020–05–29 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:88094&r=all |
| By: | Ellul, Andrew; Pagano, Marco; Scognamiglio, Annalisa |
| Abstract: | Employees in finance are known to earn higher wages and returns to talent than non-finance workers since the 1990s, suggesting that finance may have attracted talent at the expense of other industries. However, the allocation of talent is likely to respond to differences in career paths across industries, not in wages at a given date. We analyze the careers of 9,964 individuals from 1980 to 2017 based on their resumes, and find that they tend to remain in the same industry for most of their working lives, consistently with them choosing occupations based on comparisons of entire career paths. Comparing various aspects of careers - levels, slopes, PDV and risk of pay profiles - we document that finance as a whole offers a career premium compared to manufacturing and high tech, through higher and steeper pay pro files. This however masks significant diversity within finance: while asset managers enjoy a large career premium and no commensurate career risks, the opposite applies to banking and insurance employees. Furthermore, relative to manufacturing, the asset management career premium has risen for cohorts entering soon before and during the financial crisis, even after controlling for career risk, while the high-tech career premium has become commensurately large for the latest cohorts. |
| Keywords: | asset managers; careers; Hedge Funds; market discipline; scarring effects |
| JEL: | G20 G23 J24 J62 J63 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14767&r=all |
| By: | Marius Clemens; Stefan Gebauer; Tobias König |
| Abstract: | While the first two pillars of the European Banking Union have been implemented, a European deposit insurance scheme (EDIS) is still not in place. To facilitate its introduction, recent proposals argue in favor of a reinsurance scheme. In this paper, we use a regime-switching open-economy DSGE model with bank default and bank-government linkages to assess the relative efficiency of such a scheme. We find that reinsurance by both a national fiscal backstop and EDIS is efficient in stabilizing the macro economy, even though welfare gains are slightly larger with EDIS and debt-to-GDP ratios rise under the fiscal reinsurance. We demonstrate that risk-weighted contributions to EDIS are welfare-beneficial for depositors and discuss trade-offs policy makers face during the implementation of EDIS. In a counterfactual exercise, we find that EDIS would have stabilized economic activity in Germany and the rest of the euro area just as well as a fiscal backing of insured deposits during the financial crisis. However, the debt-to-GDP ratio would have been lower with EDIS. |
| Keywords: | Banking Union, Deposit Insurance, Risk-Sharing |
| JEL: | E61 F42 F45 G22 G28 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1873&r=all |
| By: | Andrew Ellul (Indiana University); Marco Pagano (University of Naples Federico II and EIEF); Annalisa Scognamiglio (University of Naples Federico II) |
| Abstract: | Employees in finance are known to earn higher wages and returns to talent than non-finance workers since the 1990s, suggesting that finance may have attracted talent at the expense of other industries. However, the allocation of talent is likely to respond to differences in career paths across industries, not in wages at a given date. We analyze the careers of 9,964 individuals from 1980 to 2017 based on their resumes, and find that they tend to remain in the same industry for most of their working lives, consistently with them choosing occupations based on comparisons of entire career paths. Comparing various aspects of careers - levels, slopes, PDV and risk of pay profiles - we document that finance as a whole offers a career premium compared to manufacturing and high tech, through higher and steeper pay profiles. This however masks significant diversity within finance: while asset managers enjoy a large career premium and no commensurate career risks, the opposite applies to banking and insurance employees. Furthermore, relative to manufacturing, the asset management career premium has risen for cohorts entering soon before and during the financial crisis, even after controlling for career risk, while the high-tech career premium has become commensurately large for the latest cohorts. |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:eie:wpaper:2007&r=all |