nep-ias New Economics Papers
on Insurance Economics
Issue of 2021‒04‒19
fifteen papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. A Public Option for Health Insurance in the Nongroup Marketplaces: Key Design Considerations and Implications By Congressional Budget Office
  2. Risk Sharing and the Demand for Insurance: Theory and Experimental Evidence from Ethiopia By Erlend Berg; Michael Blake; Karlijn Morsink
  3. Mixed participating and unit-linked life insurance contracts: design, pricing and optimal strategy By Hanna, Vanessa; Hieber, Peter; Devolder, Pierre
  4. Time-Consistent Evaluation of Credit Risk with Contagion By Ketelbuters, John John; Hainaut, Donatien
  5. Information Asymmetry and Insurance in Africa By Asongu, Simplice; Odhiambo, Nicholas
  6. Medicaid Section 1915(c) Waiver Programs Annual Expenditures and Beneficiaries Report, 2015-2017 By Jessica Ross; Kristie Liao; Andrea Wysocki
  7. Subsidy policies and insurance demand By Cai, J; de Janvry, A; Sadoulet, E
  8. COVID-19, Race, and Gender By Graziella Bertocchi; Arcangelo Dimico
  9. Medicaid Long-Term Services and Supports Annual Expenditures Report: Federal Fiscal Years 2017 and 2018 By Caitlin Murray; Alena Tourtellotte; Debra Lipson; Andrea Wysocki
  10. Risk sharing under the dominant peer-to-peer property and casualty insurance business models By Denuit, Michel; Robert, Christian Y.
  11. Polynomial series expansions and moment approximations for conditional mean risk sharing of insurance losses By Denuit, Michel; Robert, Christian Y.
  12. Impact of rough stochastic volatility models on long-term life insurance pricing By Dupret, Jean-Loup; Barbarin, Jérôme; Hainaut, Donatien
  13. Entrepreneurial Wealth and Employment: Tracing Out the Effects of a Stock Market Crash By Ring, Marius
  15. INFLUENCE OF THE DIGITAL ERA 4.0 By Imang, Vachry Arfansyah

  1. By: Congressional Budget Office
    Abstract: Some Members of Congress have introduced legislative proposals that would make a federally administered health insurance plan—often referred to as a public option—available for purchase with or without federal subsidies in the nongroup marketplaces established under the Affordable Care Act.
    JEL: I11 I13 I18
    Date: 2021–04–07
  2. By: Erlend Berg; Michael Blake; Karlijn Morsink
    Abstract: Households in developing countries commonly engage in risk sharing to cope with shocks. Despite this, the residual risk they remain exposed to - often due to aggregate events such as droughts and floods - is considerable. To mitigate these risks, governments, NGOs and multilateral organizations have introduced index insurance. To appreciate its welfare implications, however, we need to assess how insurance interacts with pre-existing risk sharing. We ask to what extent the demand for index insurance - as compared to standard indemnity insurance - depends on the level of pre-existing risk sharing. We contribute by developing a simple theoretical framework which shows that, relative to a state of autarky, risk sharing between agents increases demand for index insurance and decreases demand for indemnity insurance. In an artefactual field experiment with Ethiopian farmers who share risk in real life, we test and confirm these predictions.
    Date: 2021–04–09
  3. By: Hanna, Vanessa (Université catholique de Louvain, LIDAM/ISBA, Belgium); Hieber, Peter; Devolder, Pierre (Université catholique de Louvain, LIDAM/ISBA, Belgium)
    Abstract: In many countries, the decline in interest rates has reduced the interest in traditional participating life insurance contracts with investment guarantees and has led to a shift to unit-linked policies without guarantees. We design a novel mixed insurance contract splitting premium payments between a participating and a unit-linked fund. An additional guarantee fee is applied on the unit-linked return in order to increase the investment guarantee of the participating fund. In a utility-based framework, using power utility and prospect theory as preference functions, we show that the mixed product is usually perceived more attractive than a full investment in either the unit-linked or the participating contract. The guarantee fee is beneficial for conservative investors interested in a stronger protection against losses. This is also interesting from a marketing perspective: By the increase of the guarantee in the participating product, zero or negative guaranteed rates can be avoided.
    Keywords: Life and pension insurance ; Participating contract ; Unit-linked contract ; Investment guarantee ; Mixed insurance contracts ; Expected utility ; Cumulative prospect theory
    Date: 2021–02–23
  4. By: Ketelbuters, John John (Université catholique de Louvain, LIDAM/ISBA, Belgium); Hainaut, Donatien (Université catholique de Louvain, LIDAM/ISBA, Belgium)
    Abstract: A time-consistent evaluation is a dynamic pricing method according to which a risk that will be almost surely cheaper than another one at a future date should already be cheaper today. Common actuarial pricing approaches are usually not time-consistent. Pelsser and Ghalehjooghi (2016) derived time-consistent valuation principles from time-inconsistent ones. The aim of this paper is twofold. Firstly, we propose a model for credit insurance portfolios taking into account the contagion risk via self-exciting jump processes. Secondly, we extend the approach of Pelsser and Ghalehjooghi to credit insurance in this framework. Starting from classical time-inconsistent actuarial pricing methods, we derive partial integro-differential equations (PIDE) for their time-consistent counterparts. We discuss numerical methods for solving these PIDE and their results. We draw two conclusions from these results. On the one hand, we show that working with time-consistent evaluations in the absence of a risk of contagion does not make a significant difference compared to time-inconsisent evaluations. On the other hand, our results show that the time-consistency of evaluations allows to better take into acount the risk of contagion in credit insurance, if such a risk exists.
    Keywords: Credit risk ; Self-exciting processes ; Time-consistency
    Date: 2021–01–01
  5. By: Asongu, Simplice; Odhiambo, Nicholas
    Abstract: In this study, we assess the relevance of decreasing information asymmetry on life and non-life insurance consumption, by using data from 48 African countries during the period 2004-2014. Reduced information asymmetry is proxied by information sharing offices, namely: public credit registries and private credit bureaus. The empirical evidence is based on the Generalised Method of Moments. The findings show that information sharing offices increase insurance consumption with a comparatively higher magnitude in life insurance penetration, relative to non-life insurance penetration. Practical and theoretical implications are discussed.
    Keywords: Insurance; Information Asymmetry
    JEL: G20 G22 I30 O16 O55
    Date: 2020–01
  6. By: Jessica Ross; Kristie Liao; Andrea Wysocki
    Abstract: This report presents Medicaid section 1915(c) waiver program expenditures and participation trends for fiscal years 2015, 2016, and 2017.
    Keywords: Medicaid, long-term services and supports (LTSS), home and community-based services (HCBS), Medicaid Section 1915(c) Waivers, CMS 372 Annual Report; expenditures
  7. By: Cai, J; de Janvry, A; Sadoulet, E
    Abstract: Using data from a two-year pricing experiment, we study the impact of subsidy policies on weather insurance take-up. Results show that subsidies increase future insurance take-up through their influence on payout experiences. Exploring mechanisms of the payout effect, we find that for households that randomly benefited from financial education, receiving a payout provides a one-time learning experience that improves take-up permanently. In contrast, households with poor insurance knowledge continuously update take-up decisions based on recent experiences with disasters and payouts. Combining subsidy policies with financial education can thus be effective in promoting long-run insurance adoption.
    Keywords: Economics, Commerce, Management, Tourism and Services, Commerce, Management, Tourism and Services
    Date: 2020–08–01
  8. By: Graziella Bertocchi; Arcangelo Dimico
    Abstract: The mounting evidence on the demographics of COVID-19 fatalities points to an overrepresentation of minorities and an underrepresentation of women. Using individual-level, race-disaggregated, and georeferenced death data collected by the Cook County Medical Examiner, we jointly investigate the racial and gendered impact of COVID-19, its timing, and its determinants. Through an event study approach we establish that Blacks individuals are affected earlier and more harshly and that the effect is driven by Black women. Rather than comorbidity or aging, the Black female bias is associated with poverty and channeled by occupational segregation in the health care and transportation sectors and by commuting on public transport. Living arrangements and lack of health insurance are instead found uninfluential. The Black female bias is spatially concentrated in neighborhoods that were subject to historical redlining.
    Keywords: COVID-19, deaths, race, gender, occupations, transport, redlining, Cook County, Chicago.
    JEL: I14 J15 J16 J21 R38
    Date: 2021–03
  9. By: Caitlin Murray; Alena Tourtellotte; Debra Lipson; Andrea Wysocki
    Abstract: This report presents Medicaid long-term services and supports (LTSS) expenditures for fiscal years 2017 and 2018.
    Keywords: Medicaid, long term services and supports (LTSS), CMS-64, expenditures, rebalancing, home and community-based services (HCBS), managed long-term services and supports (MLTSS)
  10. By: Denuit, Michel (Université catholique de Louvain, LIDAM/ISBA, Belgium); Robert, Christian Y. (ENSAE)
    Abstract: This paper purposes to formalize the three business models dominating peer-to-peer (P2P) property and casualty insurance: the self-governing model, the broker model and the carrier model. The former one develops outside the insurance market whereas the latter ones may originate from the insurance industry, by partnering with an existing company or by issuing a new generation of participating insurance policies where part of the risk is shared within a community and higher losses, exceeding the community's risk-bearing capacity are covered by an insurance or reinsurance company. The present paper proposes an actuarial modeling based on conditional mean risk sharing, to support the development of this new P2P insurance offer under each of the three business models. In addition, several specific questions are also addressed in the self-governing model. Considering an economic agent who has to select the optimal pool for a risk to be shared with other participants, it is shown that uniform comparison of the Lorenz or concentration curves associated to the respective total losses of the pools under consideration allows the agent to decide which pool is preferable. The monotonicity of the respective contributions of the participants is established with respect to the convex order, showing that increasing the number of participants is always beneficial under conditional mean risk sharing.
    Keywords: Risk pooling ; conditional mean risk sharing ; Lorenz curve ; concentration curve ; convex order
    Date: 2021–01–08
  11. By: Denuit, Michel (Université catholique de Louvain, LIDAM/ISBA, Belgium); Robert, Christian Y. (ENSAE)
    Abstract: This paper exploits the representation of the conditional mean risk sharing allocations in terms of size-biased transforms to derive effective approximations within insurance pools of limited size. Precisely, the probability density functions involved in this representation are expanded with respect to the Gamma density and its associated Laguerre orthonormal polynomials, or with respect to the Normal density and its associated Hermite polynomials when the size of the pool gets larger. Depending on the thickness of the tails of the loss distributions, the latter may be replaced with their Esscher transform (or exponential tilting) of negative order. The numerical method then consists in truncating the series expansions to a limited number of terms. This results in an approximation in terms of the first moments of the individual loss distributions. Compound Panjer-Katz sums are considered as an application. The proposed method is compared with the well-established Panjer recursive algorithm. It appears to provide the analyst with reliable approximations that can be used to tune system parameters, before performing exact calculations.
    Keywords: conditional expectation ; size-biased transform ; Esscher transform ; exponential tilting ; Laguerre polynomials ; Hermite polynomials
    Date: 2021–03–16
  12. By: Dupret, Jean-Loup (Université catholique de Louvain, LIDAM/ISBA, Belgium); Barbarin, Jérôme (Université catholique de Louvain, LIDAM/ISBA, Belgium); Hainaut, Donatien (Université catholique de Louvain, LIDAM/ISBA, Belgium)
    Abstract: The Rough Fractional Stochastic Volatility (RFSV) model of Gatheral et al. [18] is remarkably consistent with financial time series data as well as with the observed implied volatility surface. Two tractable implementations are derived from the RFSV with the rBergomi model of Bayer et al. [3] and the rough Heston model of El Euch et al. [13]. We now show practically how to calibrate these two rough-type models and how they can price long-term equity-linked life insurance claims. This way, we analyze more closely their longterm properties and compare them with standard stochastic volatility models such as the Heston and Bates model. For the rough Heston, we build a highly consistent calibration and pricing methodology based on a long-term stationary regime for the volatility. This ensures a reasonable behavior of the model in the long run. Concerning the rBergomi, it does not admit a stationary volatility process and hence, this model does not exhibit realistic volatility paths for large maturities. We also show that this rBergomi is not fast enough for calibration purposes, unlike the rough Heston which is highly tractable. Compared to standard stochastic volatility models, the rough Heston hence provides efficiently a more accurate fair value of long-term life insurance contracts embedding path-dependent options while being highly consistent with historical and risk-neutral data.
    Keywords: Rough Volatility ; Volatility modeling ; Equity-linked endowment valuation ; Stationary regime ; Long-term option pricing ; Fractional Brownian motion
    Date: 2021–01–01
  13. By: Ring, Marius
    Abstract: I provide evidence that adverse shocks to the wealth of business owners during the Financial Crisis had large effects on their firms' financing, \ employment, and investment. I use individual-level portfolio data from Norway to exploit the dispersion in stock returns during 2008–09 as a source of exogenous variation in entrepreneurs' wealth. I then trace out the effects of these shocks to the entrepreneurs' privately-held firms. I find that the adverse employment and investment effects are primarily driven by young firms who—relative to mature firms—obtain considerably less bank financing following an owner wealth shock. Firms adjust employment primarily through hiring less, rather than firing, consistent with firms providing extensive-margin insurance for existing workers. These findings provide a causal link between asset price shocks and the real economy; \ and document that equity-financing frictions and the procyclicality of entrepreneurial wealth are important channels through which economic shocks amplify.
    Keywords: Financial Crisis; Employment; Entrepreneurs; Equity Financing
    JEL: D14 E24 G01 G32 J23
    Date: 2019–09–15
  14. By: Pradhana, Made Bagoes
    Abstract: Currently the world has entered the industrial era 4.0 which is based on new technology and is able to change the entire chain and management in every branch of industry, including the financial industry known as financial technology and digital banking. Infrastructure financial services are growing rapidly in Indonesian services, computation with startup companies, such as payment and money transfer systems, savings and loans, insurance, financial information service providers, capital markets, crowdfunding, and wealth management.
    Date: 2021–03–30
  15. By: Imang, Vachry Arfansyah
    Abstract: The era of industry 4.0 which is based on new technology and can change the entire chain and management in every branch of the industry including the financial industry which is commonly known as financial technology and digital banking has been experienced by the world today. Changes towards Financial Technology and digital banking show that technology is capable of playing a strategic role in providing accessible financial services. This is in accordance with the behavior of consumers who want service without having to be face-to-face at the bank, insurance office, or finance company.
    Date: 2021–03–28

This nep-ias issue is ©2021 by Soumitra K. Mallick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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