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on Insurance Economics |
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Issue of 2021‒06‒21
seventeen papers chosen by Soumitra K. Mallick Indian Institute of Social Welfare and Business Management |
| By: | Michele Fioretti (Département d'économie); Hongming Wang (Hitotsubashi University (HIT-U)) |
| Abstract: | Public procurement bodies increasingly resort to pay-for-performance contracts to promote efficient spending. We show that firm responses to pay-for-performance can widen the inequality in accessing social services. Focusing on the quality bonus payment initiative in Medicare Advantage, we find that higher quality-rated insurers responded to bonus payments by selecting healthier enrollees with premium differences across counties. Selection is profitable because the quality rating fails to adjust for differences in enrollee health. Selection inflated the bonus payments and shifted the supply of high-rated insurance to the healthiest counties, reducing access to lower-priced, higher-rated insurance in the riskiest counties. |
| Keywords: | Pay-for-Performance; Medicare Advantage,; Risk Selection; Quality Ratings; Health Insurance Access |
| JEL: | I13 I14 L15 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/2ioennpq5m90holakkatq7cmms&r= |
| By: | Michele Fioretti (Département d'économie); Hongming Wang (Hitotsubashi University (HIT-U)) |
| Abstract: | Public procurement bodies increasingly resort to pay-for-performance contracts to promote efficient spending. We show that firm responses to pay-for-performance can widen the inequality in accessing social services. Focusing on the quality bonus payment initiative in Medicare Advantage, we find that higher quality-rated insurers responded to bonus payments by selecting healthier enrollees with premium differences across counties. Selection is profitable because the quality rating fails to adjust for differences in enrollee health. Selection inflated the bonus payments and shifted the supply of high-rated insurance to the healthiest counties, reducing access to lower-priced, higher-rated insurance in the riskiest counties. |
| Keywords: | Pay-for-Performance; Medicare Advantage,; Risk Selection; Quality Ratings; Health Insurance Access |
| JEL: | I13 I14 L15 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpecon:info:hdl:2441/2ioennpq5m90holakkatq7cmms&r= |
| By: | Cremer, Helmuth; Lozachmeur, Jean-Marie |
| Abstract: | This paper studies a market for a medical product in which there is perfect competition among health insurers, while the good is sold by a monopolist. Individuals di¤er in their severity of illness and there is ex post moral hazard. We consider two regimes: one in which insurers use coinsurance rates (ad valorem reimbursements) and one in which insurers use copayments (specic reimbursements). We show that the induced equilibrium with copayments involves a lower producer price and a higher level of wel- fare for consumers. This results provides strong support for a reference price based reimbursement policy. |
| Keywords: | Ex post moral hazard; health insurance competition; copayments; imper-; fect competition |
| JEL: | I11 I13 I18 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:125695&r= |
| By: | Piotr Denderski (University of Leicester School of Business); Christian A. Stoltenberg (University of Amsterdam) |
| Abstract: | We study the existence of a profitable unemployment insurance market in a dynamic economy with adverse selection rooting in information on future job losses. The new feature of the model is that the insurer and workers interact repeatedly. Repeated interactions make it possible to threaten workers with exclusion from future insurance benefits after a default on insurance premia. With exclusion, not only the insurance against the fundamental risk, but also against future bad news about job losses matters. In contrast to conventional wisdom, we find that private unemployment insurance in the US can be profitable for a relatively short exclusion length of one year. To stimulate the emergence of a private unemployment insurance market, policy makers can facilitate the creation of a registry that archives past defaults on insurance premia. |
| Keywords: | Advance information, subjective expectations, adverse selection, unemployment insurance, repeated interactions, dynamic contracts |
| JEL: | D82 D86 G22 J65 |
| Date: | 2021–06–13 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20210052&r= |
| By: | Camarero Garcia, Sebastian; Hansch, Michelle |
| Abstract: | Although a meaningful percentage of firms are created out of unemployment and current active labor market policies in Europe often subsidize unemployed individuals to start their own businesses, little is known about the role of unemployment insurance (UI) generosity for selfemployment. By using Spanish administrative data including previously unavailable information on self-employment, we exploit a reform-driven exogenous cut in UI benefits to identify its causal effect on general employment and decompose it into the effects on self-employment and re-employment. Exploiting a discontinuity in the UI benefit schedule which changed as a result of the 2012 Spanish labor market reform, we estimate the causal reform effects on the extensive margin of (self-)employment and on unemployment duration. We find heterogeneous effects on the extensive margin: while the job-finding rate increases, the startup rate decreases. Over different time horizons, the negative effect on self-employment (35-50%) outweighs the positive effect on employment (5-33%). Our UI benefit duration elasticity estimates indicate that reduced UI benefits extend unemployment duration for individuals transitioning into self-employment but shorten unemployment for individuals finding re-employment. Due to the reform's unintended consequences for self-employment, its general employment effect is much smaller than claimed by analyses that focus only on employment. |
| Keywords: | Social Insurance,Self-Employment,Spain,Unemployment Insurance |
| JEL: | H75 J64 J65 J68 L26 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:182021&r= |
| By: | Alexey Gorn; Antonella Trigari |
| Abstract: | We study the stabilizing role of unemployment benefit extensions. We develop a tractable quantitative model with heterogeneous agents, search frictions, and nominal rigidities. The model allows for both a stabilizing aggregate demand channel and a destabilizing labor market channel of unemployment insurance. We characterize analytically the workings of each channel. Stabilizing aggregate demand effects marginally prevail in the U.S. economy and the unprecedented benefit extensions introduced during the Great Recession played a limited role for unemployment dynamics. Instead, unemployment from the model tracks actual unemployment with a combination of labor market shocks and a shock to the consumers’ borrowing capacity |
| Keywords: | Unemployment insurance; cyclical benefit extensions; heterogeneous agents; redistribution; precautionary motives; opportunity cost of employment; nominal rigidities; search frictions |
| JEL: | E24 E32 E52 J63 J64 J65 |
| URL: | http://d.repec.org/n?u=RePEc:liv:livedp:202111&r= |
| By: | Mitman, Kurt; Rabinovich, Stanislav |
| Abstract: | How should unemployment benefits vary in response to the economic crisis induced by the COVID-19 pandemic? We answer this question by computing the optimal unem- ployment insurance response to the COVID-induced recession. We compare the optimal policy to the provisions under the CARES Act-which substantially expanded unemployment insurance and sparked an ongoing debate over further increases-and several alternative scenarios. We find that it is optimal first to raise unemployment benefits but then to begin lowering them as the economy starts to reopen - despite unemployment remaining high. We also find that the $600 UI supplement payment implemented under CARES was close to the optimal policy. Extending this UI supplement for another six months would hamper the recovery and reduce welfare. On the other hand, a UI extension combined with a re-employment bonus would further increase welfare compared to CARES alone, with only minimal effects on unemployment. |
| Keywords: | COVID-19; Epidemic; optimal policy; Unemployment insurance |
| JEL: | E6 H1 J65 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14915&r= |
| By: | Alexandros Theloudis |
| Abstract: | What does preference heterogeneity imply for consumption inequality? This paper studies the link from wage to consumption inequality within a lifecycle model of consumption and family labor supply. Its distinctive feature is that households have general heterogeneous preferences over consumption and labor supply. The paper shows identi?cation of the joint distribution of unobserved household preferences separately from the observed distributions of incomes and outcomes. Estimation on data from the Panel Study of Income Dynamics in the US reveals substantial unexplained heterogeneity in consumption preferences but little unexplained heterogeneity in labor supply preferences. Preference heterogeneity accounts for about a third of consumption inequality in recent years and implies, on average, lower partial insurance of wage shocks compared to recent studies in the literature. |
| Keywords: | unobserved preference heterogeneity; family labor supply; lifecycle model; partial insurance; PSID |
| JEL: | D12 D30 D91 E21 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:irs:cepswp:2021-04&r= |
| By: | Duc Khuong Nguyen; Dinh-Tri Vo |
| Abstract: | We investigate the relationship between Enterprise Risk Management (ERM) adoption and solvency for publicly listed insurers in the European Union. Our results, which control for endogeneity problem, show that ERM-adoption insurers experience a decrease in their solvency level, which may trigger their financial vulnerability in the case of unexpected shocks. Firmspecific characteristics such as leverage, ROA, combined-ratio and business type are also found to significantly increase the EU insurers? solvency, whereas the impact of firm size and age is insignificant. Moreover, insurers that have adopted the ERM share the common characteristics of higher performance, higher leverage, bigger size, and more diversified businesses. Finally, the demand of the market is an important factor of ERM adoption and insurance solvency. |
| Keywords: | risk management, ERM, insurance, solvency |
| JEL: | G22 G31 G34 |
| Date: | 2021–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2021-010&r= |
| By: | Marie, Olivier; Vall-Castello, Judit |
| 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: | Absenteeism; Benefit Displacement; Negative Externalities; Paid Sick Leave; Presenteeism; Relapses Contagious Diseases; Sickness Insurance; Spain; Working Accidents |
| JEL: | I12 I13 I18 J22 J28 J32 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14899&r= |
| By: | Dimitris Bertsimas; Agni Orfanoudaki |
| Abstract: | As machine learning algorithms start to get integrated into the decision-making process of companies and organizations, insurance products will be developed to protect their owners from risk. We introduce the concept of algorithmic insurance and present a quantitative framework to enable the pricing of the derived insurance contracts. We propose an optimization formulation to estimate the risk exposure and price for a binary classification model. Our approach outlines how properties of the model, such as accuracy, interpretability and generalizability, can influence the insurance contract evaluation. To showcase a practical implementation of the proposed framework, we present a case study of medical malpractice in the context of breast cancer detection. Our analysis focuses on measuring the effect of the model parameters on the expected financial loss and identifying the aspects of algorithmic performance that predominantly affect the price of the contract. |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2106.00839&r= |
| By: | Andersen, Asger Lau; Johannesen, Niels; Sheridan, Adam |
| Abstract: | We combine transaction-level data from the largest retail bank in Denmark and individual-level data from government registers to study informal insurance within social networks. Accounting for transfers in cash (money transfers) and in kind (cohabitation), we estimate that family and friends jointly replace around 7 cents of the marginal dollar lost within the bottom income decile, but much less at higher income levels. We document that informal insurance covers other adverse events than income losses: expenditure shocks, family ruptures and financial distress. Parents appear to be the key providers of informal insurance with a small amount of insurance coming from siblings and virtually none from grandparents and friends. Replacement rates vary monotonically with parent economic resources. |
| Keywords: | altruism; Informal Insurance; private transfers; Risk Sharing |
| JEL: | D1 D6 G5 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14867&r= |
| By: | Yuanyuan Deng; Hanming Fang; Katja Hanewald; Shang Wu |
| Abstract: | We develop and calibrate a life-cycle model of labor supply and consumption to quantify the implications of alternative pension reforms on labor supply, individual welfare, and government budget for China’s basic old-age insurance program. We focus on urban males and distinguish low-skilled and high-skilled individuals, who differ in their preferences, health and labor income dynamics, and medical expense processes. We use the calibrated model to evaluate three potential pension reforms: (i) increasing the pension eligibility age from 60 to 65, but keeping the current pension benefit rule unchanged; (ii) keeping the pension eligibility age at 60, but proportionally lowering pension benefits so that the pension program’s budget is the same as under Reform (i); and (iii) increasing the pension eligibility age to 65 and simultaneously increasing the pension benefits so that individuals of both skill types attain the same individual welfare levels as in the status quo. We find that relative to the baseline, both Reforms (i) and (ii) can substantially improve the budgets of the pension system, but at the cost of substantial individual welfare loss for both skill types. In contrast, we find that Reform (iii) can modestly improve the budget of the pension system while ensuring that both skill types are as well off as in the status quo. We find that Reforms (i) and (ii) slightly increases, but Reform (iii) slightly decreases, the overall labor supply. |
| JEL: | D14 D15 H55 J22 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28897&r= |
| By: | Steven Diamond; Stephen Boyd; David Greenberg; Mykel Kochenderfer; Andrew Ang |
| Abstract: | Using a lifecycle framework with Epstein-Zin (1989) utility and a mixed-integer optimization approach, we compute the optimal age to claim Social Security benefits. Taking advantage of homogeneity, a sufficient statistic is the ratio of wealth to the primary insurance amount (PIA). If the investor's wealth to PIA ratio exceeds a certain threshold, individuals should defer Social Security for at least a year. The optimal threshold depends on mortality assumptions and an individual's utility preferences, but is less sensitive to capital market assumptions. The threshold wealth to PIA ratio increases from 5.5 for men and 5.2 for women at age 62 to 11.1 for men and 10.4 for women at age 69. Below the threshold wealth to PIA ratio, individuals claim Social Security to raise consumption. Above this level, investors can afford to fund consumption out of wealth for at least one year, and then claim a higher benefit. |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2106.00125&r= |
| By: | Whyte, Richard; Connolly, Sheelah; Wren, Maev-Ann |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:esr:wpaper:rb202021&r= |
| By: | Villalobos López, José Antonio |
| Abstract: | Pensions should not be seen as an expense, but as a social investment, which benefits those who have made the most work effort during their productive life. The entire constitutional basis of social security is found in article 123 of Magna Carta, which is why it is said that the main legal framework of social security in our country could be fragile and vague. The fundamental difference between pension and retirement is that the former will not receive the benefit of the employer directly, but through a common fund or mass that he accumulated during his working life, while the second implies that the person who delivers the benefit will be the employer to whom he served during his productive life. As theoretical concepts there are two major pension systems or schemes: defined profit and defined contribution. The defined benefit system states that workers' resources will accumulate in a common fund. In the defined contribution system or individual capitalization each affiliate has an account, where their quotes are deposited that are capitalized. |
| Keywords: | Social Security, Pension, Retirement, Defined Benefit and Defined Contribution |
| JEL: | H55 |
| Date: | 2021–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:108065&r= |
| By: | Felix-Benedikt Liebrich; Cosimo Munari |
| Abstract: | We establish general "collapse to the mean" principles that provide conditions under which a law-invariant functional reduces to an expectation. In the convex setting, we retrieve and sharpen known results from the literature. However, our results also apply beyond the convex setting. We illustrate this by providing a complete account of the "collapse to the mean" for quasiconvex functionals. In the special cases of consistent risk measures and Choquet integrals, we can even dispense with quasiconvexity. In addition, we relate the "collapse to the mean" to the study of solutions of a broad class of optimisation problems with law-invariant objectives that appear in mathematical finance, insurance, and economics. We show that the corresponding quantile formulations studied in the literature are sometimes illegitimate and require further analysis. |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2106.01281&r= |