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on Insurance Economics |
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Issue of 2020‒09‒14
twenty-two papers chosen by Soumitra K. Mallick Indian Institute of Social Welfare and Business Management |
| By: | Andreas Haller, Stefan Staubli, Josef Zweimüller |
| Abstract: | We study the welfare effects of disability insurance (DI) and derive social-optimality conditions for the two main DI policy parameters: (i) DI eligibility rules and (ii) DI benefits. Causal evidence from two DI reforms in Austria generate fiscal multipliers (total over mechanical cost reductions) of 2.0-2.5 for stricter DI eligibility rules and of 1.3-1.4 for lower DI benefits. Stricter DI eligibility rules generate lower income losses (earnings + transfers), particularly at the lower end of the income distribution. Our analysis suggests that the welfare cost of rolling back the Austrian DI program is lower through tightening eligibility rules than through lowering benefits. Applying our framework to the US DI system suggests that both loosening eligibility rules, and increasing benefits, would be welfare increasing. |
| Keywords: | Disability insurance, screening, benefits, policy reform |
| JEL: | H53 H55 J14 J21 J65 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:rsi:irersi:5&r=all |
| By: | Kettlewell, Nathan (University of Technology, Sydney) |
| Abstract: | I evaluate the accuracy of people's subjective probability expectations for using various health services. Subjective expectations closely reflect patterns of observed utilization, are predicted by the same covariates as observed utilization, and correlate with objective measures of risk. At the same time, observable characteristics like age and health are weakly predictive of service demand. Through a series of examples, I demonstrate how subjective expectations can provide new insights about health behavior, specifically in the areas of asymmetric information, moral hazard and estimating welfare attributable to private care. The findings support collecting subjective expectations about health services in household surveys for use in applied research. |
| Keywords: | subjective expectations, beliefs, subjective probabilities, health insurance, healthcare demand |
| JEL: | D82 D84 I11 I12 I13 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13445&r=all |
| By: | Haller, Andreas (University of Zurich); Staubli, Stefan (University of Calgary); Zweimüller, Josef (University of Zurich) |
| Abstract: | We study the welfare effects of disability insurance (DI) and derive social-optimality conditions for the two main DI policy parameters: (i) DI eligibility rules and (ii) DI benefits. Causal evidence from two DI reforms in Austria generate fiscal multipliers (total over mechanical cost reductions) of 2.0-2.5 for stricter DI eligibility rules and of 1.3-1.4 for lower DI benefits. Stricter DI eligibility rules generate lower income losses (earnings + transfers), particularly at the lower end of the income distribution. Hence, to roll back the Austrian DI program, policy makers should implement tighter DI eligibility rules rather than lower DI benefits. An application of our framework to the DI system of the U.S. suggests that DI eligibility rules are too strict and DI benefits are too low. |
| Keywords: | disability insurance, screening, benefits, policy reform |
| JEL: | H53 H55 J14 J21 J65 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13539&r=all |
| By: | Keum, Daniel (Columbia Business School); Meier, Stephan (Columbia University) |
| Abstract: | Expanding unemployment insurance (UI) not only reduces the burden for the unemployed but also the moral cost of layoffs to firms and their managers. Using staggered expansions of UI across US states, we show that expanding UI leads to larger layoffs in firms experiencing negative economic shocks. The effects are stronger in weakly governed and financially unconstrained firms, where managers have greater discretion to avoid moral cost. This study presents moral cost as a novel microeconomic channel through which UI affects layoff decisions, which can compromise its effectiveness as a social insurance program and an automatic stabilizer. |
| Keywords: | unemployment insurance, layoffs, managers, prosocial behavior |
| JEL: | D04 D91 J65 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13497&r=all |
| By: | Gaëlle CAPITAINE; Frédéric AHADO; Anne-Lise BONTEMPS-CHANEL; Laure FREY |
| Abstract: | Dans le contexte de taux d’intérêt bas persistants, le niveau des revalorisations attribuées par les organismes d’assurance aux polices d’assurance-vie et aux bons de capitalisation appelle une vigilance particulière de l’autorité de supervision, tant au regard du contrôle prudentiel que de la bonne exécution des termes contractuels et des dispositions afférant à la participation aux résultats. Le taux de revalorisation moyen des fonds euros des contrats individuels (y compris groupes ouverts) se maintient à 1,83% en 2018, comme en 2017 (net de prélèvements sur encours et avant prélèvements sociaux), après 1,93% pour 2016. Le niveau de provisionnement de la participation aux bénéfices continue d’augmenter en 2018 mais à un rythme légèrement inférieur à celui des dernières années pour s’établir à 4,3% des provisions d’assurance-vie (contre 3,9% en 2017 et 3,4% en 2016). Bien que les assureurs continuent à doter la provision pour participation aux bénéfices, l’évolution du taux de revalorisation ne suit donc pas la baisse des rendements de l’actif (-24 points de base). S’agissant des garanties octroyées, le taux technique moyen rattaché aux contrats d’assurance-vie individuels se situe en moyenne à 0,43% en 2018. Cette statistique ne rend cependant pas compte de la disparité des situations individuelles. Ainsi, 18 organismes présentent un taux technique moyen supérieur à 1,5% (soit 2,3% des provisions mathématiques totales). Une prolongation de la situation de taux bas pourrait les fragiliser, en cas d’insuffisance de rendement de leurs actifs. Le comportement des organismes d’assurance en France en termes de revalorisation des contrats individuels est très hétérogène. Sont les mieux rémunérés les contrats les plus anciens, contraints par des taux techniques élevés, et ceux commercialisés après 2010, compte tenu de la pression concurrentielle. Par ailleurs, le taux de chargement de gestion des contrats payé par les assurés est en moyenne de 0,61%. Les sociétés de bancassurance affichent les taux de frais les plus élevés et un taux technique moyen inférieur au reste du marché. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:analys:105&r=all |
| By: | Naoki Aizawa; Soojin Kim; Serena Rhee |
| Abstract: | This paper studies the optimal design of social insurance programs for disabled workers by developing and estimating an equilibrium labor search model with screening contracts. In the model, firms may strategically use employment contracts, consisting of wage and job amenities, to screen out the disabled. The optimal structure of disability policies depends on firms' screening incentives, which may distort employment rates and contracts. By exploiting policy changes on the labor demand side for the disabled in the United States, we identify and estimate our equilibrium model to explore the optimal joint design of disability policies, including disability insurance (DI) and subsidies to firms accommodating disabled workers. We find that firm subsidies mitigate screening distortions; at the same time, they interact with DI by reducing the labor supply disincentives it generates. The optimal policy structure leads to a considerable welfare gain by simultaneously making firm subsidies and DI benefits more generous. |
| JEL: | E61 H21 H51 I18 J32 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27478&r=all |
| By: | Joseph P. Newhouse |
| Abstract: | I look at prevention through an economic lens and make three main points. First, those advocating preventive measures are often asked how much money a given measure saves. This question is misguided. Rather preventive measures can be thought of as insurance, with a certain cost in the present that may or may not pay off in the future. In fact, although most medical preventive measures improve expected health, they do not save money. Various lifestyle and early childhood interventions, however, may both save money and improve health. Second, preventive measures, including medical and lifestyle measures, are heterogeneous in their value, both across measures and, within measure, across individuals. As a result, generalizations in everyday discourse about the value of prevention can be overly broad. Third, health insurance coverage for medical preventive measures should generally be more extensive than coverage for the treatment of a medical condition, though full coverage of preventive services is not necessarily optimal. |
| JEL: | I1 I12 I13 I18 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27553&r=all |
| By: | Toren L. Fronsdal; Jay Bhattacharya; Suzanne Tamang |
| Abstract: | We study a unique all-payer data set spanning 38 states to examine the differences in inpatient reimbursement rates paid by traditional Medicare (TM), Medicare Advantage (MA), Medicaid, and private (under-65) insurers, and the differences in negotiated rates across the 60 largest private insurers. After controlling for enrollee and hospital mix, we find that private insurers pay 37 percent more than TM, and MA pays 10 percent more than TM for the five most common inpatient diagnoses. The correlation in risk-adjusted payments by private insurers and by TM at the same hospital for the same diagnosis is only 0.10. There is significant variation in negotiated prices within and across private payers. Among the five largest US insurers, the most expensive insurer negotiates prices that are 5-26 percent higher than the mean price for the 20 most common inpatient diagnoses. Additionally, we find a 10 percent increase in insurer market share corresponds to a 7 percent decrease in inpatient negotiated prices and a 10 percent decrease in the standard deviation of prices. This finding suggests that increased insurer market power allows payers to negotiate prospective payment contracts – rather than the more common fee-for-service payments – thereby offloading financial risk to providers. |
| JEL: | G22 I11 I13 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27490&r=all |
| By: | Jamaal Ahmad; Kristian Buchardt; Christian Furrer |
| Abstract: | We consider computation of market values of bonus payments in multi-state with-profit life insurance. The bonus scheme consists of additional benefits bought according to a dividend strategy that depends on the past realization of financial risk, the current individual insurance risk, the number of additional benefits currently held, and so-called portfolio-wide means describing the shape of the insurance business. We formulate numerical procedures that efficiently combine simulation of financial risk with more analytical methods for the outstanding insurance risk. Special attention is given to the case where the number of additional benefits bought only depends on the financial risk. |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2007.04051&r=all |
| By: | Gaëlle CAPITAINE; Frédéric AHADO; Anne-Lise BONTEMPS-CHANEL; Laure FREY |
| Abstract: | L’analyse se concentre sur les engagements liés aux retraites dans le cadre de l’assurance-vie, en regroupant plusieurs catégories de contrats , représentant 128 milliards d’euros de provisions mathématiques moyennes en 2018. La plus importante des catégories, les contrats collectifs en cas de vie, représente 4/5 des encours moyens des contrats d’assurance-vie à dominante retraite. Le taux de revalorisation moyen des contrats collectifs à dominante retraite (hors retraite à points) s’établit à 2,43% au titre de 2018 (net de frais de chargement et de prélèvements sociaux), contre 2,41% en 2017. La stabilité est également observée sur les taux de revalorisation des contrats individuels (1,83% en 2017 et 2018) et rompt avec la tendance à la baisse des années précédentes (- 20 points de base par an en moyenne entre 2015 et 2017). L’évolution du taux de revalorisation moyen est similaire pour tous les types de contrats: les taux de revalorisation moyens des contrats collectifs en cas de vie, sont stables et s’établissent à 2,55% et ceux des contrats PERP demeurent les plus faibles du marché à 1,50%. Les taux techniques rattachés aux contrats collectifs à dominante retraite s’établissent à 1,42%. Il existe, de plus, des contraintes de taux techniques très différentes entre les catégories. Les PERP ont un taux technique nul. A l’inverse, les contrats de Retraite Professionnelle Supplémentaire (RPS) offerts par les Institutions de Retraite Professionnelle (IRP) agréées sont très contraints par leurs taux techniques plus élevés (2,42%). Ainsi, l’environnement de taux bas pourrait à terme peser sur le segment du marché de l’assurance-vie collective. Malgré cela, les contrats collectifs sont majoritairement revalorisés à un niveau supérieur au taux technique sous l’effet de contraintes contractuelles engageant l’organisme au-delà de la réglementation ou de la pression des souscripteurs. Par ailleurs, le taux de chargement de gestion des contrats payé en 2018 par les assurés est en moyenne de 0,47%, les institutions de prévoyance affichant un taux de chargement deux fois plus élevé que la moyenne du marché. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:analys:106&r=all |
| By: | Cormac O'Dea; David Sturrock |
| Abstract: | The "annuity puzzle" refers to the fact that annuities are rarely purchased despite the longevity insurance they provide. Most explanations for this puzzle assume that individuals have accurate expectations about their future survival. We provide evidence that individuals misperceive their mortality risk, and study the demand for annuities in a setting where annuities are priced by insurers on the basis of objectively-measured survival probabilities but in which individuals make purchasing decisions based on their own subjective survival probabilities. Subjective expectations have the capacity to explain significant rates of non-annuitization, yielding a quantitatively important explanation for the annuity puzzle. |
| JEL: | D14 D84 D91 J14 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27677&r=all |
| By: | Slusky, David (University of Kansas); Ginther, Donna K. (University of Kansas) |
| Abstract: | Medical divorce occurs when couples split up so that one spouse's medical bills do not deplete the assets of the healthy spouse. It has not been studied in the economics literature, but it has been discussed by attorneys and widely reported in the media. We develop a model of medical divorce that demonstrates that divorce is optimal when a couple's joint assets exceed the exempted asset level. We use the Affordable Care Act's Medicaid expansion which removed asset tests to qualify for Medicaid as exogenous variation in the incidence of divorce (as it was only implemented by some states). We find that the ACA expansion decreased the prevalence of divorce by 11.6% among those ages 50–64 with a college degree. These results are robust to numerous placebo checks including older subsamples (who qualify for Medicare regardless of assets) and earlier years (before the expansion was implemented). Our results suggest that Medicaid expansion reduced medical divorce. |
| Keywords: | medicaid expansion, divorce, assets, education |
| JEL: | H20 H42 I13 J12 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13487&r=all |
| By: | John A. Major; Stephen J. Mildenhall |
| Abstract: | We analyze multiline pricing and capital allocation in equilibrium no-arbitrage markets. Existing theories often assume a perfect complete market, but when pricing is linear, there is no diversification benefit from risk pooling and therefore no role for insurance companies. Instead of a perfect market, we assume a non-additive distortion pricing functional and the principle of equal priority of payments in default. Under these assumptions, we derive a canonical allocation of premium and margin, with properties that merit the name the natural allocation. The natural allocation gives non-negative margins to all independent lines for default-free insurance but can exhibit negative margins for low-risk lines under limited liability. We introduce novel conditional expectation measures of relative risk within a portfolio and use them to derive simple, intuitively appealing expressions for risk margins and capital allocations. We give a unique capital allocation consistent with our law invariant pricing functional. Such allocations produce returns that vary by line, in contrast to many other approaches. Our model provides a bridge between the theoretical perspective that there should be no compensation for bearing diversifiable risk and the empirical observation that more risky lines fetch higher margins relative to subjective expected values. |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2008.12427&r=all |
| By: | Antonio Cabrales (Universidad Carlos III de Madrid); Irma Clots-Figueras (University of Kent); Roberto Hernan Gonzalez (Burgundy School of Business); Praveen Kujal (Middlesex University) |
| Abstract: | Formal or informal institutions have long been adopted by societies to protect against opportunistic behavior. However, we know very little about how these institutions are chosen and their impact on behavior. We experimentally investigate the demand for different levels of institutions that provide low to high levels of insurance and its subsequent impact on prosocial behavior. We conduct a large-scale online experiment where we add the possibility of purchasing insurance to safeguard against low reciprocity to the standard trust game. We compare two different mechanisms, the private (purchase) and the social (voting) choice of institutions. Whether voted or purchased, we find that there is demand for institutions in low trustworthiness groups, while high trustworthiness groups always demand lower levels of institutions. Lower levels of institutions are demanded when those who can benefit from opportunistic behavior, i.e. low trustworthiness individuals, can also vote for them. Importantly, the presence of insurance crowds out civic spirit even when subjects can choose the no insurance option: trustworthiness when formal institutions are available is lower than in their absence. |
| Keywords: | institutions; trust; trustworthiness; voting; insurance |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:not:notcdx:2020-09&r=all |
| By: | Xiaoxue Sherry Gao; Glenn W. Harrison; Rusty Tchernis |
| Abstract: | We propose the use of Bayesian estimation of risk preferences of individuals for applications of behavioral welfare economics to evaluate observed choices that involve risk. Bayesian estimation provides more systematic control of the use of informative priors over inferences about risk preferences for each individual in a sample. We demonstrate that these methods make a difference to the rigorous normative evaluation of decisions in a case study of insurance purchases. We also show that hierarchical Bayesian methods can be used to infer welfare reliably and efficiently even with significantly reduced demands on the number of choices that each subject has to make. Finally, we illustrate the natural use of Bayesian methods in the adaptive evaluation of welfare. |
| JEL: | C11 D6 D81 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27685&r=all |
| By: | Malacarne, Jonathan G.; Paul, Laura A.; Flatnes, Jon Einar; Boucher, Stephen R.; Carter, Michael R. |
| Keywords: | International Development, Demand and Price Analysis, Risk and Uncertainty |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea20:304360&r=all |
| By: | Doligalski, Pawel; Ndiaye, Abdoulaye; Werquin, Nicolas |
| Abstract: | Half of the jobs in the U.S. feature pay-for-performance. We study nonlinear income taxation in a model where such labor contracts arise as a result of moral hazard frictions within firms. We derive novel formulas for the incidence of arbitrarily nonlinear reforms of a given tax code on both average earnings and their sensitivity to output risk. We show theoretically and quantitatively that, following an increase in tax progressivity, the higher sensitivity of earnings to performance caused by the crowding-out of private insurance is almost fully o�set by a countervailing performance-pay effect driven by labor supply responses. As a result, earnings risk is hardly affected by policy. We then turn to the normative analysis of a government that levies taxes and transfers to redistribute income across workers with different levels of uninsurable productivity. We�find that setting taxes without accounting for the endogeneity of private insurance is close to optimal. Thus, the common concern that standard models of taxation underestimate the cost of redistribution is, in the context of performance-based compensation, overblown. |
| Keywords: | moral hazard, optimal taxation, Performance pay, Tax Incidence |
| JEL: | D61 D82 D86 H21 H22 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:102652&r=all |
| By: | Jiwook Jang; Rosy Oh |
| Abstract: | As corporates and governments become more digital, they become vulnerable to various forms of cyber attack. Cyber insurance products have been used as risk management tools, yet their pricing does not reflect actual risk, including that of multiple, catastrophic and contagious losses. For the modelling of aggregate losses from cyber events, in this paper we introduce a bivariate compound dynamic contagion process, where the bivariate dynamic contagion process is a point process that includes both externally excited joint jumps, which are distributed according to a shot noise Cox process and two separate self-excited jumps, which are distributed according to the branching structure of a Hawkes process with an exponential fertility rate, respectively. We analyse the theoretical distributional properties for these processes systematically, based on the piecewise deterministic Markov process developed by Davis (1984) and the univariate dynamic contagion process theory developed by Dassios and Zhao (2011). The analytic expression of the Laplace transform of the compound process and its moments are presented, which have the potential to be applicable to a variety of problems in credit, insurance, market and other operational risks. As an application of this process, we provide insurance premium calculations based on its moments. Numerical examples show that this compound process can be used for the modelling of aggregate losses from cyber events. We also provide the simulation algorithm for statistical analysis, further business applications and research. |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2007.04758&r=all |
| By: | Cécile FRAYSSE; Anne-Gaëlle ZIMMERMANN; Alexis PIAT |
| Abstract: | L’année 2019, pourtant marquée par une accélération de la baisse des taux et l’apparition de taux négatifs sur les emprunts obligataires de référence, n’a pas fait apparaître de rupture dans l’allocation de l’épargne des français. L’assurance vie reste le principal support de l’épargne financière des ménages. |
| Keywords: | assurance vie, épargne |
| JEL: | G22 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:analys:110&r=all |
| By: | Frédéric AHADO; Liliana ARIAS; Vladimir AZZOPARDI; Gaelle CAPITAINE; Cécile FRAYSSE; Chuon-Hong HUYNH; Stéphane JARRIJON; Alexis PIAT |
| Abstract: | . |
| Keywords: | assurance vie, épargne |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:analys:111&r=all |
| By: | Elena Falcettoni |
| Abstract: | Primary care physicians (PCPs) provide more specialty procedures in less-urban areas, where specialists are fewer. Using a structural random-coefficient model and the demographic and time variation in the data, this paper shows that changes in policy-set reimbursements lead to a reallocation of the suddenly-more-remunerative procedures away from specialists and toward PCPs, and this effect is stronger, the more rural an area is. A reimbursement-unit increase for a given procedure leads to outside-metro PCPs gaining 7-15% market share more than metro PCPs in that procedure, at the expense of specialists. Small metropolitan areas and very rural areas are the most affected. |
| Keywords: | Primary care physicians; Specialists; Specialty procedures; Rural; Reallocation; Medicare; Fee-for-service |
| JEL: | I18 I13 J20 R12 |
| Date: | 2020–08–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-63&r=all |
| By: | Alon, Titan (University of California, San Diego); Doepke, Matthias (Northwestern University); Olmstead-Rumsey, Jane (Northwestern University); Tertilt, Michèle (University of Mannheim) |
| Abstract: | In recent US recessions, employment losses have been much larger for men than for women. Yet, in the current recession caused by the Covid-19 pandemic, the opposite is true: unemployment is higher among women. In this paper, we analyze the causes and consequences of this phenomenon. We argue that women have experienced sharp employment losses both because their employment is concentrated in heavily affected sectors such as restaurants, and due to increased childcare needs caused by school and daycare closures, preventing many women from working. We analyze the repercussions of this trend using a quantitative macroeconomic model featuring heterogeneity in gender, marital status, childcare needs, and human capital. Our quantitative analysis suggests that a pandemic recession will i) feature a strong transmission from employment to aggregate demand due to diminished within-household insurance; ii) result in a widening of the gender wage gap throughout the recovery; and iii) contribute to a weakening of the gender norms that currently produce a lopsided distribution of the division of labor in home work and childcare. |
| Keywords: | COVID-19, pandemics, recessions, business cycle, gender equality, school closures, childcare, gender wage gap |
| JEL: | D13 E32 J16 J20 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13562&r=all |