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on Insurance Economics |
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Issue of 2020‒07‒20
twenty papers chosen by Soumitra K. Mallick Indian Institute of Social Welfare and Business Management |
| By: | Michaelides, Marios; Mueser, Peter R. (University of Missouri, Columbia); Smith, Jeffrey A. (University of Wisconsin-Madison) |
| 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: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13324&r=all |
| By: | Alexander Ahammer; Analisa Packham (Economics Department at Vanderbilt University) |
| Abstract: | Using administrative data for Upper Austrian workers from 2003–2013, we show that an extension in unemployment insurance (UI) duration increases unemployment length and impacts worker physical and mental health. These effects vary by gender. Specifically, we find that women eligible for an additional 9 weeks of UI benefits fill fewer opioid and antidepressant prescriptions and experience a lower likelihood of filing a disability claim, as compared to non-eligible unemployed women. Moreover, estimates indicate within-household spillovers for young children. For men, we find that extending UI benefit duration increases the likelihood of a cardiac event and eventual disability retirement filing. |
| Keywords: | Unemployment insurance, health, disability, opioids |
| JEL: | I38 I18 J18 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:jku:econwp:2020-09&r=all |
| By: | Siha Lee |
| Abstract: | For married couples, spousal labor supply can act as a household insurance mechanism against one spouse’s earnings shock. This paper evaluates the insurance value of the Social Security Disability Insurance (SSDI) program among married households when wives face a time allocation problem between market hours and spousal care following their husbands’ disability. Using an event study approach, I find that while there is a sizable increase in wives’ working hours after their husbands’ job displacement, wives’ labor supply responses to their husbands’ disability are small, and instead, a considerable amount of time is spent in spousal care. I develop and estimate a dynamic structural model of married households and find that incorporating time loss due to spousal care increases the insurance value of SSDI relative to its costs. Furthermore, policy reforms such as supplementary caregiving benefits can improve social welfare. |
| Keywords: | disability; social security; added worker effect; caregiving |
| JEL: | D13 H53 H55 I38 J22 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:mcm:deptwp:2020-08&r=all |
| By: | Becker, Bo; Opp, Marcus M.; Saidi, Farzad |
| Abstract: | This paper documents the long-run effects of an important reform of capital regulation for U.S. insurance companies in 2009. We show that its design effectively eliminates capital requirements for (non-agency) MBS, implying an aggregate capital relief of over $18bn at the time of the reform. By 2015, 40% of all high-yield assets in the overall fixed-income portfolio are MBS investments. This result is primarily driven by insurers' reduced propensity to sell poorly-rated legacy assets. Using a regression discontinuity framework, we can attribute this behavior to capital requirements. We also provide evidence that the insurance industry, driven by large life insurers, crowds out other investors in the new issuance of (high-yield) MBS post reform. Our findings are consistent with the view that the regulation and supervision of the U.S. insurance sector is influenced by short-term industry interests. |
| Keywords: | Capital regulation; insurance industry; NAIC; Regulatory Reform; risk- based capital requirements |
| JEL: | G20 G22 G23 G28 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14373&r=all |
| By: | Peter John Robinson; W.J. Wouter Botzen; Howard Kunreuther; Shereen J. Chaudhry |
| Abstract: | Default options may provide a low-cost way of influencing behaviour without modifying incentives and constraining choices between alternatives. We study whether defaults can be used to increase insurance coverage against low-probability/high-impact risks, like floods, and whether past flood insurance purchases and flooding experience moderate the effect of defaults. Our study uses a naturally occurring difference in experience, comparing the surveyed flood insurance choices of 1,187 homeowners, half of whom are in the Netherlands, where flood insurance penetration rates are low and recent flooding caused minor losses, and the other half of whom are in the United Kingdom (UK), where the opposite is true. We find defaults are effective among homeowners with little to no flood-related experience: in the Netherlands defaults increase the likelihood of insuring by between 17 and 18 percentage points. Although there is no overall effect of defaults in the UK, defaults increase flood insurance coverage for risk averse individuals, and those who have no reported previous flood experience and have not purchased flood insurance. Anticipated regret about not having insurance coverage in the event of a flood, and perceptions about the insurance cost explain between 34 and 37 percent of the relationship between the default and flood insurance demand. We discuss policy implications of our findings. |
| JEL: | D1 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27381&r=all |
| By: | Guo, Audrey (Santa Clara University); Johnston, Andrew C. (University of California, Merced) |
| Abstract: | For every payment, there is an equal and opposite tax. In the study of unemployment insurance, economists have developed a substantial literature considering the impact of payments on labor supply. In contrast, they have usually left unexamined the influence on labor demand of the unique tax that finances it. Experience rating in unemployment insurance presents several fascinating questions for economists. This paper marks some of those questions and helps analysts engage them by explaining the unique institutions at play. |
| Keywords: | unemployment insurance, payrol taxation, experience rating |
| JEL: | D22 H22 H25 H71 J23 J32 J38 J65 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13330&r=all |
| By: | Johnston, Andrew C. (University of California, Merced); Mas, Alexandre (Princeton University) |
| Abstract: | We examine how a 16-week cut in potential unemployment insurance (UI) duration in Missouri affected search behavior of UI recipients and the aggregate labor market. Using a regression discontinuity design (RDD), we estimate a marginal effect of maximum duration on UI and nonemployment spells of approximately 0.45 and 0.25 respectively. We use the RDD estimates to simulate the unemployment rate assuming no market-level externalities. The simulated response, which implies almost a one percentage point decline in the unemployment rate, closely approximates the estimated change in the unemployment rate following the benefit cut. This finding suggests that, even in a period of high unemployment, the labor market absorbed this influx of workers without crowding-out other jobseekers. |
| Keywords: | unemployment insurance, benefits, labor supply, employment, unemployment |
| JEL: | J64 J65 D91 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13331&r=all |
| By: | Fleitas, Sebastian; Gowrisankaran, Gautam; Lo Sasso, Anthony |
| Abstract: | We evaluate reclassification risk in the small group health insurance market from a period before ACA community rating regulations. Reclassification risk in this setting is of key policy relevance and also a matter of debate. We use detailed claims and premiums data from a large insurance company and control non-parametrically for selection. We find a pass through of 16% from changes in health risk to changes in premiums, with a stronger equilibrium relationship between premiums and risk. This pattern is consistent with the insurer implicitly offering "guaranteed renewability'' contracts with one-sided pricing commitment. We further find that groups whose health risk decreases have premiums that are more responsive to risk, which the guaranteed renewability model attributes to ex post renegotiation. The observed pricing policy adds 60% of the consumer welfare gain from community rating relative to experience rating. The welfare gains are limited because employers and employees switch coverage frequently. |
| Keywords: | Adverse Selection; experience rating; guaranteed renewability; inertia; Pass through |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14394&r=all |
| By: | Carlos Andr\'es Araiza Iturria; Fr\'ed\'eric Godin; M\'elina Mailhot |
| Abstract: | We propose a stochastic model allowing property and casualty insurers with multiple business lines to measure their liabilities for incurred claims risk and calculate associated capital requirements. Our model includes many desirable features which enable reproducing empirical properties of loss ratio dynamics. For instance, our model integrates a double generalized linear model relying on accident semester and development lag effects to represent both the mean and dispersion of loss ratio distributions, an autocorrelation structure between loss ratios of the various development lags, and a hierarchical copula model driving the dependence across the various business lines. The model allows for a joint simulation of loss triangles and the quantification of the overall portfolio risk through risk measures. Consequently, a diversification benefit associated to the economic capital requirements can be measured, in accordance with IFRS 17 standards which allow for the recognition of such benefit. The allocation of capital across business lines based on the Euler allocation principle is then illustrated. The implementation of our model is performed by estimating its parameters based on a car insurance data obtained from the General Insurance Statistical Agency (GISA), and by conducting numerical simulations whose results are then presented. |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2007.07068&r=all |
| By: | Olivier Cabrignac (SCOR Global Life); Arthur Charpentier (UQAM - Université du Québec à Montréal = University of Québec in Montréal); Ewen Gallic (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | Family history is usually seen as a significant factor insurance companies look at when applying for a life insurance policy. Where it is used, family history of cardiovascular diseases, death by cancer, or family history of high blood pressure and diabetes could result in higher premiums or no coverage at all. In this article, we use massive (historical) data to study dependencies between life length within families. If joint life contracts (between a husband and a wife) have been long studied in actuarial literature, little is known about child and parents dependencies. We illustrate those dependencies using 19th century family trees in France, and quantify implications in annuities computations. For parents and children, we observe a modest but significant positive association between life lengths. It yields different estimates for remaining life expectancy, present values of annuities, or whole life insurance guarantee, given information about the parents (such as the number of parents alive). A similar but weaker pattern is observed when using information on grandparents. |
| Keywords: | annuities,collaborative data,dependence,family history,genealogy,grandparents-grandchildren,information,joint life insurance,parents-children,whole life insurance |
| Date: | 2020–06–17 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-02871927&r=all |
| By: | George Overton; Olivier de Bandt |
| Abstract: | Plantin & Rocher (2016) document how insurers often engage in risk-shifting years before the materialization of a failure. This paper empirically examines this claim by testing the mechanisms of insurance insolvency, using a first-of-its-kind international database assembled by the authors which merges data on balance sheet and income statements together with information on impairments over the last 30 years. Employing different fixed effects logistic specifications and parametric survival models, the paper presents evidence, on top of the role of profitability as a leading indicator of failures, of the intrinsic asymmetries between the life and non-life insurance sectors. In the life sector, asset mix is highly significant in predicting an impairment, while operating efficiency plays no role. In the non-life sector, the opposite proves true. |
| Keywords: | Insurance, insolvency prediction, leading indicators, financial crises |
| JEL: | G22 G01 G11 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2020-15&r=all |
| By: | Auriol, Emmanuelle; Lassebie, Julie; Panin, Amma; Raiber, Eva; Seabright, Paul |
| Abstract: | This paper provides experimental support for the hypothesis that insurance can be a motive for religious donations. We randomize enrollment of members of a Pentecostal church in Ghana into a commercial funeral insurance policy. Then church members allocate money between them- selves and a set of religious goods in a series of dictator games with signicant stakes. Members enrolled in insurance give signicantly less money to their own church compared to members that only receive information about the insurance. Enrollment also reduces giving towards other spiritual goods. We set up a model exploring different channels of religiously based insurance. The implications of the model and the results from the dictator games suggest that adherents perceive the church as a source of insurance and that this insurance is derived from beliefs in an interventionist God. Survey results suggest that material insurance from the church community is also important and we hypothesize that these two insurance channels exist in parallel. |
| Keywords: | Charitable Giving; economics of religion; Informal Insurance |
| JEL: | D14 G22 O12 O17 Z12 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14301&r=all |
| By: | Nendel, Max (Center for Mathematical Economics, Bielefeld University); Schmeck, Maren Diane (Center for Mathematical Economics, Bielefeld University); Riedel, Frank (Center for Mathematical Economics, Bielefeld University) |
| Abstract: | In this paper, we provide an axiomatic approach to general premium priciples giving rise to a decomposition into risk, as a generalization of the expected value, and deviation, as a generalization of the variance. We show that, for every premium priciple, there exists a maximal risk measure capturing all risky components covered by the insurance prices. In a second step, we consider dual representations of convex risk measures consistent with the premium priciple. In particular, we show that the convex conjugate of the aforementioned maximal risk measure coincides with the convex conjugate of the premium principle on the set of all finitely additive probability measures. In a last step, we consider insurance prices in the presence of a not neccesarily frictionless market, where insurance claims are traded. In this setup, we discuss premium principles that are consistent with hedging using securization products that are traded in the market. |
| Keywords: | Principles of premium calculation, risk measure, deviation measure, convex duality, superhedging |
| Date: | 2020–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:bie:wpaper:638&r=all |
| By: | Fatum, Rasmus; Hattori, Takahiro; Yamamoto, Yohei |
| Abstract: | China holds more international reserves than any other country. 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 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hiasdp:hias-e-98&r=all |
| By: | Max Nendel; Maren Diane Schmeck; Frank Riedel |
| Abstract: | In this paper, we provide an axiomatic approach to general premium priciples giving rise to a decomposition into risk, as a generalization of the expected value, and deviation, as a generalization of the variance. We show that, for every premium priciple, there exists a maximal risk measure capturing all risky components covered by the insurance prices. In a second step, we consider dual representations of convex risk measures consistent with the premium priciple. In particular, we show that the convex conjugate of the aforementioned maximal risk measure coincides with the convex conjugate of the premium principle on the set of all finitely additive probability measures. In a last step, we consider insurance prices in the presence of a not neccesarily frictionless market, where insurance claims are traded. In this setup, we discuss premium principles that are consistent with hedging using securization products that are traded in the market. |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2006.14272&r=all |
| By: | Wenlong Hu |
| Abstract: | This paper presents a novel framework for valuation and hedging of the insurer's net liability on a Guaranteed Minimum Maturity Benefit (GMMB) embedded in variable annuity (VA) contracts whose underlying mutual fund dynamics evolve under the influence of the regime-switching model. Numerical solutions for valuations and Greeks (i.e. valuation sensitivities with respect to model parameters) of GMMB under stochastic mortality are derived. Valuation and hedging is performed using an accurate, fast and efficient Fourier Space Time-stepping (FST) algorithm. The mortality component of the model is calibrated to the American male population. Sensitivity analysis is performed with respect to various parameters. The hedge effectiveness is assessed by comparing profit-and-loss performances for an unhedged and three statically hedged portfolios. The results provide a comprehensive analysis on valuation and hedging the longevity risk, interest rate risk and equity risk for the GMMB embedded in VAs, and highlight the benefits to insurance providers who offer those products. |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2006.15483&r=all |
| By: | Jose Garcia-Louzao (Bank of Lithuania) |
| Abstract: | This paper studies the impact of severance pay generosity on workers' voluntary mobility decisions. The identification strategy exploits a major labor market reform in Spain in February 2012 together with the exposure of some workers to a layoff shock. I rely on rich administrative data to estimate a discrete time duration model with dynamic treatment effects. The results show that a decrease in mobility costs induced by a reduction in severance pay made workers who expected to be displaced in the near future more likely to voluntarily leave their employers. The results indicate that policies targeting employers may also affect workers' behavior. They further reveal the relevance of taking into account interactions between employment protection and unemployment insurance. |
| Keywords: | Employment protection, Severance Pay, Job mobility, Quits, Plant closures, Mass layoffs |
| JEL: | J62 J63 J65 |
| Date: | 2020–06–18 |
| URL: | http://d.repec.org/n?u=RePEc:lie:wpaper:76&r=all |
| By: | Marie, Olivier (Erasmus University Rotterdam); Vall-Castello, Judit (University of Barcelona) |
| Abstract: | We investigate the impact on work absence of a massive reduction in paid sick leave benefits. We exploit a policy change that only affected public sector workers in Spain and compare changes in the number and length of spells they take relative to unaffected private sector workers. Our results highlight a large drop in frequency mostly offset by increases in average duration. Overall, the policy did reduce number of days lost to sick leave. For some, however, return to work may have been premature as we document huge increases in both the proportion of relapses and working accidents rates. |
| Keywords: | sickness insurance, paid sick leave, absenteeism, presenteeism, relapses contagious diseases, benefit displacement, working accidents, negative externalities, Spain, COVID-19 |
| JEL: | I12 I13 I18 J22 J28 J32 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13379&r=all |
| By: | Antunes, António; Cavalcanti, Tiago; Mendicino, Caterina; Peruffo, Marcel; Villamil, Anne |
| 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. |
| Keywords: | BAPCPA; Chapter 7; Deleveraging |
| JEL: | E44 E52 E58 G21 G32 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14330&r=all |
| By: | Jake Anders (Centre for Education Policy and Equalising Opportunities, UCL Institute of Education, University College London); Andy Dickerson (Department of Economics, University of Sheffield); Paul Gregg (Department of Social and Policy Sciences, University of Bath); Lindsey Macmillan (Centre for Education Policy and Equalising Opportunities, UCL Institute of Education, University College London) |
| Abstract: | While recent forecasts have pointed to an employment shock of a similar magnitude to that seen in the previous Great Recession, many of the circumstances this time round suggest we may be facing a more severe experience. This is likely to disproportionately affect young people, those from deprived families both in adulthood and in childhood, ethnic minorities, and those with low levels of education. Evidence shows that there are long-term costs to spells out of work, including reduced employment opportunities and wages, alongside lower job satisfaction, health and happiness. A combined response of macro-level interventions, alongside individually-targeted education, skills and active labour market policy responses are required. Targeted cuts to National Insurance, changing the incentives of the Coronavirus Job Retention Scheme (CJRS), increasing access courses to higher education, funding further education routes, and combined interventions including targeted job support schemes and high quality work placements are all policies that can aid recovery and minimise the costs of scarring. |
| Keywords: | unemployment, COVID-19, scarring, ALMP, education policy |
| JEL: | E24 I28 J68 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:ucl:cepeow:20-12&r=all |