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on Insurance Economics |
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Issue of 2021‒07‒26
fifteen papers chosen by Soumitra K. Mallick Indian Institute of Social Welfare and Business Management |
| By: | Xiaoqing Liang; Ruodu Wang; Virginia Young |
| Abstract: | In this paper, we study an optimal insurance problem for a risk-averse individual who seeks to maximize the rank-dependent expected utility (RDEU) of her terminal wealth, and insurance is priced via a general distortion-deviation premium principle. We prove necessary and sufficient conditions satisfied by the optimal solution and consider three ambiguity orders to further determine the optimal indemnity. Finally, we analyze examples under three distortion-deviation premium principles to explore the specific conditions under which no insurance or deductible insurance is optimal. |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2107.02656&r= |
| By: | Aouad, Marion (University of California, Irvine) |
| Abstract: | A negative shock to one household member can have consequences for other household members. This paper demonstrates the extent of job lock and health insurance plan stemming from the unanticipated health shock of a child family member. In response to the shock, I estimate a 7 – 14 percent decreased likelihood of all family members leaving the current health insurance network and health plan. This is plausibly driven by reduced rates of job switching by the plan's primary policyholder. Furthermore, switching frictions stemming from the non-portability of health insurance products may contribute to the observed job and "health plan lock." |
| Keywords: | household, health shock, health insurance, job lock |
| JEL: | I10 I12 J10 J20 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14541&r= |
| By: | Lamiraud, Karine (ESSEC Research Center, ESSEC Business School); Stadelmann, Pierre (Service de la santé publique, Etat de Vaud) |
| Abstract: | Our article deals with pricing strategies in Swiss health insurance markets and focuses on the relationship between basic and supplementary insurance. We analyzed how firms’ pricing strategies (i.e., pricing of basic and supplementary products) can create switching costs in basic health insurance markets, thereby preventing competition in basic insurance from working properly. More specifically, using unique market and survey data, we investigated whether firms use bundling strategies or supplementary products as low-price products to attract and retain basic insurance consumers. To our knowledge, this is the first paper to analyze these pricing strategies in the context of insurance/health insurance. We found no evidence of bundling in the Swiss setting. We did however observe that firms used low-price supplementary products that contributed to lock in consumers. A majority of firms offered at least one of such product at a low price. None offered low-price products in both basic and supplementary markets. Low-price insurance products differed across firms. When buying a lowprice supplementary product, consumers always bought their basic contract from the same firm. Furthermore, those who opted for low-price supplementary products were less likely to declare an intention to switch basic insurance firms in the near future. This result was true for all risk category levels. |
| Keywords: | Managed Competition; Swiss Health Care Systems; Pricing; Consumer Inertia; Switching Costs; Supplementary Insurance; low-price supplementary product; Bundling |
| JEL: | I10 |
| Date: | 2020–05–13 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:essewp:dr-20004&r= |
| By: | Katherine Townsend |
| Abstract: | After a year of crippling economic impacts due to the coronavirus pandemic, at least 16 million workers remain unemployed. The national unemployment rate for February 2021 was 6.2 percent; in February 2020, it stood at 3.5 percent.* Many unemployed workers have struggled to make ends meet over the past year. Since March 2020, the unemployment insurance system was changed to help workers make ends meet during the pandemic. These measures created challenges for state unemployment insurance administrators and have often fallen short of the program's goals. |
| Date: | 2021–04–07 |
| URL: | http://d.repec.org/n?u=RePEc:fip:a00034:92889&r= |
| By: | International Monetary Fund |
| Abstract: | This note provides an update and assessment of developments in insurance supervision since 2014. It is part of the 2020 Financial Sector Assessment Program (FSAP) for the Hong Kong SAR (HKSAR) and draws on discussions there from September 10 to 24, 2019. It has not been updated for the impact of recent global events associated with the COVID-19 pandemic. The insurance sector is large, especially long-term (life) insurance, highly international and has been growing steadily. The long-term market is amongst the world’s largest, particularly by penetration (premiums to GDP). Growth has been supported by the popularity of savings products, including sales of policies to Mainland Chinese visitors (MCVs), although these have declined from their peak. The general insurance sector, though comprising many more companies, is relatively small and spread over many lines. The authorities have identified scope for growth in protection policies as well as opportunities for captive and specialty lines related to China’s Belt and Road Initiative. Tax incentives have supported the recent successful introduction of new annuity and health insurance products. Although foreign-owned companies account for a large share of business, the HKSAR is the home of three major domestic groups operating internationally. |
| Keywords: | HKSAR insurance; E. insurance conduct; context of a Financial Sector Assessment Program; FSAP assessment's finding; insurance Authority; People's republic of china-Hong kong special administrative region; Insurance companies; Insurance; Financial Sector Assessment Program; Solvency; Insurance supervision; Global |
| Date: | 2021–06–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2021/121&r= |
| By: | Farhad Billimoria; Filiberto Fele; Iacopo Savelli; Thomas Morstyn; Malcolm McCulloch |
| Abstract: | Securing an adequate supply of dispatchable resources is critical for keeping a power system reliable under high penetrations of variable generation. Traditional resource adequacy mechanisms are poorly suited to exploiting the growing flexibility and heterogeneity of load enabled by advancements in distributed resource and control technology. To address these challenges this paper develops a resource adequacy mechanism for the electricity sector utilising insurance risk management frameworks that is adapted to a future with variable generation and flexible demand. The proposed design introduces a central insurance scheme with prudential requirements that align diverse consumer reliability preferences with the financial objectives of an insurer-of-last-resort. We illustrate the benefits of the scheme in (i) differentiating load by usage to enable better management of the system during times of extreme scarcity, (ii) incentivising incremental investment in generation infrastructure that is aligned with consumer reliability preferences and (iii) improving overall reliability outcomes for consumers. |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2106.14351&r= |
| By: | Bhalotra, Sonia R. (University of Warwick); Britto, Diogo (Bocconi University); Pinotti, Paolo (Bocconi University); Sampaio, Breno (Universidade Federal de Pernambuco) |
| Abstract: | We estimate impacts of male job loss, female job loss, and male unemployment benefits on domestic violence in Brazil. We merge employer-employee and social welfare registers with administrative data on domestic violence cases brought to criminal courts, use of public shelters by victims and mandatory notifications of domestic violence by health providers. Leveraging mass layoffs for identification, we find that both male and female job loss, independently, lead to large and pervasive increases in domestic violence. Exploiting a discontinuity in unemployment insurance eligibility, we find that eligible men are not less likely to commit domestic violence while benefits are being paid, and more likely to commit it once benefits expire. Our findings are consistent with job loss increasing domestic violence on account of a negative income shock and an increase in exposure of victims to perpetrators, with unemployment benefits partially offsetting the income shock while reinforcing the exposure shock. |
| Keywords: | domestic violence, unemployment, mass layoffs, unemployment insurance, income shock, exposure, Brazil |
| JEL: | J16 J08 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14543&r= |
| By: | Katia Colaneri; Alessandra Cretarola; Benedetta Salterini |
| Abstract: | In this paper we study the optimal investment and reinsurance problem of an insurance company whose investment preferences are described via a forward dynamic exponential utility in a regime-switching market model. Financial and actuarial frameworks are dependent since stock prices and insurance claims vary according to a common factor given by a continuous time finite state Markov chain. We construct the value function and we prove that it is a forward dynamic utility. Then, we characterize the investment strategy and the optimal proportional level of reinsurance. We also perform numerical experiments and provide sensitivity analyses with respect to some model parameters. |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2106.13888&r= |
| By: | Eric Barrette; Leemore Dafny; Karen Shen |
| Abstract: | Even among commercially-insured individuals, opioid use disorder (OUD) is undertreated in the U.S.: nearly half receive no treatment within 6 months of a new diagnosis. Using a difference-in-differences specification exploiting the extension of insurance parity requirements for substance disorder treatment to small group enrollees in 2014, we find that parity increases utilization of residential treatment but decreases utilization of agonist medications, the standard of care. We find direct interventions to increase access to medication may be more promising: increases in the county-level share of physicians able to prescribe agonists are associated with substitution toward medication-assisted treatment. |
| JEL: | H51 I1 I12 I13 I28 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29001&r= |
| By: | Albert Jan Hummel |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9177&r= |
| By: | Abe Dunn; Joshua D. Gottlieb; Adam Shapiro; Daniel J. Sonnenstuhl; Pietro Tebaldi |
| Abstract: | Who bears the consequences of administrative problems in healthcare? We use data on repeated interactions between a large sample of U.S. physicians and many different insurers to document the complexity of healthcare billing, and estimate its economic costs for doctors and consequences for patients. Observing the back-and-forth sequences of claims' denials and resubmissions for past visits, we can estimate physicians' costs of haggling with insurers to collect payments. Combining these costs with the revenue never collected, we estimate that physicians lose 17% of Medicaid revenue to billing problems, compared with 5% for Medicare and 3% for commercial payers. Identifying off of physician movers and practices that span state boundaries, we find that physicians respond to billing problems by refusing to accept Medicaid patients in states with more severe billing hurdles. These hurdles are just as quantitatively important as payment rates for explaining variation in physicians' willing to treat Medicaid patients. We conclude that administrative frictions have first-order costs for doctors, patients, and equality of access to healthcare. |
| JEL: | H52 H75 I11 I13 I14 I18 L14 L33 L88 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29010&r= |
| By: | Arthur Charpentier; Molly James; Hani Ali |
| Abstract: | The economic consequences of drought episodes are increasingly important, although they are often difficult to apprehend in part because of the complexity of the underlying mechanisms. In this article, we will study one of the consequences of drought, namely the risk of subsidence (or more specifically clay shrinkage induced subsidence), for which insurance has been mandatory in France for several decades. Using data obtained from several insurers, representing about a quarter of the household insurance market, over the past twenty years, we propose some statistical models to predict the frequency but also the intensity of these droughts, for insurers, showing that climate change will have probably major economic consequences on this risk. But even if we use more advanced models than standard regression-type models (here random forests to capture non linearity and cross effects), it is still difficult to predict the economic cost of subsidence claims, even if all geophysical and climatic information is available. |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2107.07668&r= |
| By: | Cosimo Munari; Lutz Wilhelmy; Stefan Weber |
| Abstract: | Protection of creditors is a key objective of financial regulation. Where the protection needs are high, i.e., in banking and insurance, regulatory solvency requirements are an instrument to prevent that creditors incur losses on their claims. The current regulatory requirements based on Value at Risk and Average Value at Risk limit the probability of default of financial institutions, but they fail to control the size of recovery on creditors' claims in the case of default. We resolve this failure by developing a novel risk measure, Recovery Value at Risk. Our conceptual approach can flexibly be extended and allows the construction of general recovery risk measures for various risk management purposes. By design, these risk measures control recovery on creditors' claims and integrate the protection needs of creditors into the incentive structure of the management. We provide detailed case studies and applications: We analyze how recovery risk measures react to the joint distributions of assets and liabilities on firms' balance sheets and compare the corresponding capital requirements with the current regulatory benchmarks based on Value at Risk and Average Value at Risk. We discuss how to calibrate recovery risk measures to historic regulatory standards. Finally, we show that recovery risk measures can be applied to performance-based management of business divisions of firms and that they allow for a tractable characterization of optimal tradeoffs between risk and return in the context of investment management. |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2107.10635&r= |
| By: | Diokno-Sicat, Charlotte Justine; Mariano, Maria Alma P. |
| Abstract: | In a developing country such as the Philippines, social protection is crucial in providing support to the poor and vulnerable. There has been recent progress in the design and delivery of social protection programs, owing largely to a more coherent social protection strategy and framework introduced in 2009. Efforts to consolidate programs and improve their targeting, design, and implementation are well documented. In addition, social protection programs were believed to have contributed to an observed reduction in poverty and inequality. However, more work is needed to increase the coverage, as well as improve the implementation and coherence of social protection policy. This paper aims to provide an overall view of national government social protection expenditures in the Philippines. Public expenditure trends in social protection were examined, with emphasis on selected major programs. Social protection efforts in the Philippines were compared with those in other countries and a review of existing literature on current social protection programs in the country was made to guide policymakers in rethinking either the design or the existence of these programs. The paper concluded with recent developments in social protection policy that could be continued to further the gains of social protection efforts in the last decade. |
| Keywords: | social safety nets, social protection, public expenditure, social insurance, labor market intervention, implicit subsidy |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:phd:rpseri:rps_2021-01&r= |
| By: | International Monetary Fund |
| Abstract: | The institutional framework for Macroprudential Policies (MaPP) in the Hong Kong Special Administrative Region (the Hong Kong SAR) is well established. According to the Basic Law, the Government of the Hong Kong SAR shall on its own formulate monetary and financial policies. The Financial Secretary (FS) and the Secretary for Financial Services and the Treasury (SFST) are responsible for policies for maintaining the stability and integrity of the financial system of the Hong Kong SAR. The Hong Kong SAR has a sector-based regulatory structure and the responsibilities and tools for safeguarding financial stability are spread across the Financial Services and the Treasury Bureau (FSTB) and three regulators (namely, the Hong Kong Monetary Authority (HKMA), Securities and Futures Commission (SFC) and Insurance Authority (IA)). There are good and well-structured interagency coordination and consultation mechanisms, through the Council of Financial Regulators (CFR) and the Financial Stability Committee (FSC), chaired by the FS and the SFST, respectively. Broad coordination between the CFR and government agencies on taxation and housing supply-side policies has also worked well. MaPP and risk assessment are communicated to the public openly and frequently through speeches, press releases and regular publications, including the Half-Yearly Monetary and Financial Stability Report of the HKMA and the Half-yearly Review Report of the Global and Local Securities Markets of the SFC. |
| Date: | 2021–06–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2021/117&r= |