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on Insurance Economics |
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Issue of 2021‒07‒19
seventeen papers chosen by Soumitra K. Mallick Indian Institute of Social Welfare and Business Management |
| By: | Gopalan, Maithreyi (The Pennsylvania State University); Lombardi, Caitlin; Bullinger, Lindsey Rose |
| Abstract: | Many states expanded their Medicaid programs to low-income adults under the Affordable Care Act (ACA). These expansions increased Medicaid coverage among low-income parents and their children. Whether these improvements in coverage and healthcare use lead to better health outcomes for parents and their children remains unanswered. We used longitudinal data on a large, nationally representative cohort of elementary-aged children from low-income households from 2010-2016. Using a difference-in-differences approach in state Medicaid policy decisions, we estimated the effect of the ACA Medicaid expansions on parent and child health. We found that parents’ self-reported health status improved significantly post-expansion in states that expanded Medicaid through the ACA by 4 percentage points (p < 0.05), a 4.7% improvement. We found no significant changes in children’s utilization of routine doctor visits or parents’ assessment of their children’s health status. We observed modest decreases in children’s body mass index (BMI) of about 2% (p < 0.05), especially for girls. |
| Date: | 2021–06–24 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:vghk6&r= |
| By: | Hainaut, Donatien (Université catholique de Louvain, LIDAM/ISBA, Belgium) |
| Abstract: | A common approach for pricing insurance contracts consists to represent the insured's health status by a Markov chain. This article extends this framework by observing this chain on a random scale of time, defined as the inverse of an α-stable process. This stochastic clock induces sub-exponential waiting times spent in each state. We first review and extend the properties of this time-change to a conditional filtration at time t > 0. Next we evaluate a general type of insurance contract from inception to expiry. |
| Date: | 2021–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:aiz:louvad:2021019&r= |
| By: | Brendan M. Price |
| Abstract: | As the labor market recovers from the COVID-19 pandemic, claims for unemployment insurance (UI) have been surprisingly slow to return to conventional levels. As recently as 2021Q1, initial claims for regular UI benefits averaged nearly 800,000 per week (see Figure 1)—more than twice as many as were observed at a comparable point during the recovery from the Great Recession. |
| Date: | 2021–07–02 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfn:2021-07-02-2&r= |
| By: | Arthur Charpentier; Lariosse Kouakou; Matthias L\"owe; Philipp Ratz; Franck Vermet |
| Abstract: | The peer-to-peer (P2P) economy has been growing with the advent of the Internet, with well known brands such as Uber or Airbnb being examples thereof. In the insurance sector the approach is still in its infancy, but some companies have started to explore P2P-based collaborative insurance products (eg. Lemonade in the U.S. or Inspeer in France). The actuarial literature only recently started to consider those risk sharing mechanisms, as in Denuit and Robert (2021) or Feng et al. (2021). In this paper, describe and analyse such a P2P product, with some reciprocal risk sharing contracts. Here, we consider the case where policyholders still have an insurance contract, but the first self-insurance layer, below the deductible, can be shared with friends. We study the impact of the shape of the network (through the distribution of degrees) on the risk reduction. We consider also some optimal setting of the reciprocal commitments, and discuss the introduction of contracts with friends of friends to mitigate some possible drawbacks of having people without enough connections to exchange risks. |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2107.02764&r= |
| By: | Nizam, Ahmed Mehedi |
| Abstract: | Here, we argue that the commercial for-profit insurance companies act more like a memory-less system in a way that the premiums paid by the policy holders during one accounting period will be of no avail to them during subsequent periods although the excess premiums earned in the previous periods may rest in the companies' retained earnings. Moreover, commercial insurances are subject to many over-head costs, taxations and uncertainties which are not present in the realm of social insurances. As the costs and uncertainties are greatly reduced and the profits earned in the previous periods are available to meet present and future expenditures, social insurances entail a lower amount of premium for the policy holders than its conventional commercial counterpart. The objective of this study is to quantify the extent of profit made by the commercial insurance companies born out of the premium after meeting up operating expenditures and claim settlements and how this profit evolves over time after being invested at the risk free rate. To us, this is the amount of money that would otherwise rest in a trust fund available for future claim settlement if there were equivalent social insurance schemes in place. To do so, we collect annual country level data of premium collection, claim settlement and operating expenditure incurred for 04 (four) OECD countries from OECD insurance database and extrapolate the profit trends into the future using appropriate ARIMA/ARIMA-GARCH framework. As anticipated, the profit shows an explicit upward trend after making a V-shaped recovery right after the global financial crisis of 2008. |
| Keywords: | Social insurance; Commercial insurance; Comparative analysis; ARIMA-GARCH modeling |
| JEL: | G22 I13 |
| Date: | 2021–06–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:108523&r= |
| By: | Winters, John V. (Iowa State University) |
| Abstract: | This article examines employment rates for persons in their teens and early 20s during April and May 2021 compared to April and May 2019. Employment rates for teens are significantly higher in Spring 2021 than in Spring 2019. However, individuals ages 20-24 experienced significantly lower employment rates in Spring 2021 than in Spring 2019. Differing employment patterns for these two age groups are unlikely to reflect childcare issues or lingering COVID-19 concerns. Restaurant employment rates suggest that weak labor demand is likely not the predominant factor. One plausible explanation is that teenagers are less influenced by generous unemployment insurance benefits. |
| Keywords: | employment, labor supply, COVID-19, pandemic, young people, unemployment insurance |
| JEL: | J2 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14508&r= |
| By: | Howard Kunreuther; Jason Schupp |
| Abstract: | COVID-19 has demonstrated the challenges that policymakers, insurers, businesses, and employees face when disaster assistance programs are developed after the pandemic has already started. There is now an opportunity to design and implement effective and efficient solutions to manage the financial risks of a future pandemic. This paper suggests a practical framework, informed by the recent experience with COVID-19, for defining a meaningful role for insurance in managing business interruption (BI) and other risks from future pandemics. Policymakers, regulators, businesses, and other stakeholders interacting with representatives from the insurance industry can assist in defining its role in providing protection against the financial consequences of future pandemics. This framework, while designed for dealing with future pandemics, may be applied to other catastrophic and systemic risks. |
| JEL: | D81 D91 G22 H84 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28968&r= |
| By: | Pascaline Dupas; Radhika Jain |
| Abstract: | Using administrative data on over 4 million hospital visits, we document striking gender disparities within a government health insurance program that entitles 46 million poor individuals to free hospital care in Rajasthan, India. Females account for only 33% of hospital visits among children and 43% among the elderly. These shares are lower for more expensive types of care, and far lower than sex differences in illness prevalence can explain. Almost two-thirds of non-childbirth spending is on males. We combine these data with patient survey, census, and electoral data to show that 1) the program is unable to fully offset the costs of care-seeking, which results in disparities in hospital utilization because some households are willing to allocate more resources to male than female health; 2) lowering costs does not reduce disparities, because males benefit as much as females do; and 3) long-term exposure to village-level female leaders reduces the gender gap in utilization, but effects are modest and limited to girls and young women. In the presence of gender bias, increasing access to and subsidizing social services may increase levels of female utilization but fail to address gender inequalities without actions that specifically target females. |
| JEL: | I12 I13 J16 O12 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28972&r= |
| By: | Helmuth Cremer; Jean-Marie Lozachmeur |
| 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 differ 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 (specific reimbursements). We show that the induced equilibrium with copayments involves a lower producer price and a higher level of welfare for consumers. This results provides strong support for a reference price based reimbursement policy. |
| Keywords: | ex post moral hazard, health insurance competition, copayments, imperfect competition |
| JEL: | I11 I13 I18 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9160&r= |
| By: | Denuit, Michel (Université catholique de Louvain, LIDAM/ISBA, Belgium); Robert, Christian Y. (ENSAE, Paris, France) |
| Abstract: | This paper establishes general comparison results for conditional expectations given sums of independent random variables, in terms of convex and related stochastic order relations. It is shown that these expectations decrease in the number of terms comprised in the conditioning sums and inherit their variability. Additional inequalities are obtained under regression dependence in the sum. These results are applied to study diversification effects resulting from pooling independent insurance losses according to the risk allocation rule proposed by Denuit and Dhaene (2012). New convergence results are obtained from the decreasingness of the conditional expectations in the number of participants, with respect to the convex order. It is shown that the variance of individual contributions tends to 0 in many cases so that the contribution tends to the corresponding expected loss. |
| Keywords: | conditional expectation ; law of large number ; convex order ; increasing convex order ; dilation order ; directionally convex order ; insurance risk pooling |
| Date: | 2021–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:aiz:louvad:2021022&r= |
| By: | Albert Jan Hummel (University of Amsterdam) |
| Abstract: | This paper studies optimal income taxation in an environment where matching frictions generate a trade-off for workers between high wages and low unemployment risk. A higher marginal tax rate shifts the trade-off in favor of low unemployment risk, whereas a higher tax burden or unemployment benefit has the opposite effect. Changes in unemployment generate fiscal externalities, which modify optimal tax formulas. I show that optimal employment subsidies (such as the EITC) phase in with income and that the provision of unemployment insurance justifies a positive marginal tax rate even without income heterogeneity. A calibration exercise to the US economy suggests that optimal transfers for low-income individuals are larger if unemployment risk is taken into account. |
| Keywords: | directed search, optimal taxation, unemployment insurance |
| JEL: | H21 J64 J65 J68 |
| Date: | 2021–07–04 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20210061&r= |
| By: | Dupret, Jean-Loup (Université catholique de Louvain, LIDAM/ISBA, Belgium); Hainaut, Donatien (Université catholique de Louvain, LIDAM/ISBA, Belgium) |
| Abstract: | Affine Volterra processes have gained more and more interest in recent years. In particular, this class of processes generalizes the classical Heston model for which widely-used calibration techniques have long been known, as well as the rough Heston model which has garnered lots of attention from academicians and practitioners since 2014. The aim of this work is therefore to revisit and generalize the constant propotion portfolio insurance (CPPI) under the class of affine Volterra processes. Indeed, existing simulation-based methods for CPPI do not apply easily to affine Volterra processes, in particular when the variance process of the underlying risky asset is non-Markovian in the current variance state (as in the rough Heston model). We instead propose an approach based on the characteristic function of the log-cushion which appears to be more consistent, stable and particularly efficient in the case of affine Volterra processes compared with classical simulation techniques. Using such approach, we describe in this paper several properties of CPPI (moments, density and risk measures), which naturally result from the form of the log-cushion’s characteristic function under affine Volterra processes. This allows to consider different behaviors and more complex dynamics for the underlying risky asset in the context of CPPI and hence build portfolio strategies that are extremely tractable and consistent with financial data. |
| Keywords: | Finance ; Portfolio insurance ; CPPI ; Volterra processes ; Rough volatility |
| Date: | 2021–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:aiz:louvad:2021026&r= |
| By: | Dong-Young Lim |
| Abstract: | This paper proposes a flexible and analytically tractable class of frequency-severity models based on neural networks to parsimoniously capture important empirical observations. In the proposed two-part model, mean functions of frequency and severity distributions are characterized by neural networks to incorporate the non-linearity of input variables. Furthermore, it is assumed that the mean function of the severity distribution is an affine function of the frequency variable to account for a potential linkage between frequency and severity. We provide explicit closed-form formulas for the mean and variance of the aggregate loss within our modelling framework. Components of the proposed model including parameters of neural networks and distribution parameters can be estimated by minimizing the associated negative log-likelihood functionals with neural network architectures. Furthermore, we leverage the Shapely value and recent developments in machine learning to interpret the outputs of the model. Applications to a synthetic dataset and insurance claims data illustrate that our method outperforms the existing methods in terms of interpretability and predictive accuracy. |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2106.10770&r= |
| By: | Levon Barseghyan (Institute for Fiscal Studies); Francesca Molinari (Institute for Fiscal Studies and Cornell University); Matthew Thirkettle (Institute for Fiscal Studies) |
| Abstract: | This paper is concerned with learning decision makers’ preferences using data on observed choices from a ?nite set of risky alternatives. We propose a discrete choice model with unobserved heterogeneity in consideration sets and in standard risk aversion. We obtain su?cient conditions for the model’s semi-nonparametric point identi?cation, including in cases where consideration depends on preferences and on some of the exogenous variables. Our method yields an estimator that is easy to compute and is applicable in markets with large choice sets. We illustrate its properties using a dataset on property insurance purchases. |
| Date: | 2020–06–24 |
| URL: | http://d.repec.org/n?u=RePEc:ifs:cemmap:28/20&r= |
| By: | Angelov, Nikolay (Uppsala Center for Fiscal Studies); Waldenström, Daniel (Research Institute of Industrial Economics, Stockholm) |
| Abstract: | We use population-wide tax register data to document the impact of the COVID-19 pandemic on firm sales, tax revenues, and sick pay in Sweden. The pandemic impact is identified using within-year, between-year, and geographical variation, and our data allows us to run placebo tests. Our findings confirm the large negative effects of the pandemic, but shed new light on their magnitudes and sensitivity to COVID-19 morbidity rates. Specifically, we find that the impact on VAT and firm sales was larger than on commonly used industrial and service production indexes, larger than the effect on electricity for industrial use, but less than the effect on excise taxes on air travel. The pandemic's impact on short-term sick pay is large, but unlike tax payments, it does not vary with local infection rates, indicating behavioral responses to more generous rules for sickness insurance during the pandemic. |
| Keywords: | COVID-19, VAT, excise taxes, sick pay |
| JEL: | H24 H25 J22 J24 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izapps:pp179&r= |
| By: | Angelov, Nikolay (The Swedish Tax Agency and Uppsala Center for Fiscal Studies (UCFS)); Waldenström, Daniel (Research Institute of Industrial Economics (IFN)) |
| Abstract: | We use population-wide tax register data to document the impact of the COVID-19 pandemic on firm sales, tax revenues, and sick pay in Sweden. The pandemic impact is identified using within-year, between-year, and geographical variation, and our data allows us to run placebo tests. Our findings confirm the large negative effects of the pandemic, but shed new light on their magnitudes and sensitivity to COVID-19 morbidity rates. Specifically, we find that the impact on VAT and firm sales was larger than on commonly used industrial and service production indexes, larger than the effect on electricity for industrial use, but less than the effect on excise taxes on air travel. The pandemic’s impact on short-term sick pay is large, but unlike tax payments, it does not vary with local infection rates, indicating behavioral responses to more generous rules for sickness insurance during the pandemic. |
| Keywords: | COVID-19 impact; VAT; Excise taxes; Sick pay |
| JEL: | H24 H25 J22 J24 |
| Date: | 2021–07–02 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1397&r= |
| By: | Denuit, Michel (Université catholique de Louvain, LIDAM/ISBA, Belgium); Trufin, Julien (ULB); Verdebout, Thomas (ULB) |
| Abstract: | Modern data science tools are effective to produce predictions that strongly correlate with responses. Model comparison can therefore be based on the strength of dependence between responses and their predictions. Positive expectation dependence turns out to be attractive in that respect. The present paper proposes an effective testing procedure for this dependence concept and applies it to model selection. A simulation study is performed to evaluate the performances of the proposed testing procedure. Empirical illustrations using insurance loss data demonstrate the relevance of the approach for model selection in supervised learning. The most positively expectation dependent predictor can then be autocalibrated to obtain its balance-corrected version that appears to be optimal with respect to Bregman, or forecast dominance. |
| Keywords: | Expectation dependence ; concentration curve ; Lorenz curve ; autocalibration ; convex order ; balance correction |
| Date: | 2021–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:aiz:louvad:2021021&r= |