nep-ias New Economics Papers
on Insurance Economics
Issue of 2021‒08‒09
thirteen papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Decomposition Approach Applied on the Effects of Taxes and Social Insurance Premiums on Income Distribution: Contributions to the Size of the Middle Class in Japan By OHNO Taro; KITAMURA Yukinobu; MIYAZAKI Takeshi
  2. Who Wins and Who Loses from PhilHealth? Cost and Benefit Incidence of Social Health Insurance in a Lifecycle Perspective By Abrigo, Michael R.M.
  3. Impact of EU-wide Insurance Stress Tests on Equity Prices and Systemic Risk By Petr Jakubik; Saida Teleu
  4. Job Displacement, Unemployment Benefits and Domestic Violence By Bhalotra, Sonia; Britto, Diogo G. C.; Pinotti, Paolo; Sampaio, Breno
  5. Why do insurers fail? A comparison of life and non-life insolvencies using a new international database By Olivier de Bandt; George Overton
  6. A Theory of Political Participation By Isa, Berk Orkun; Yucel, Mustafa Eray
  7. Micro-evidence from a System-wide Financial Meltdown: The German Crisis of 1931 By Kristian Blickle; Markus Brunnermeier; Stephan Luck
  8. Poverty, Inequality and Social Protection in Myanmar By Miguel Niño-Zarazúa; Finn Tarp
  9. Employment Mobility of FDI Workers in Vietnam: New Evidence from Recent Surveys By Nguyen, Cuong Viet
  10. Investment Opportunities in India's Healthcare Sector By Sarwal, Rakesh; Prasad, Urvashi; Gopal, K. Madan; Kalal, Shoyabahmed; Kaur, Deepyot; Kumar, Anurag; Regy, Prasanth; Sharma, Jitendra
  11. Firm-bank linkages and optimal policies in a lockdown By Anatoli Segura; Alonso Villacorta
  12. Revitalising the Agriculture Sector in India By VARMA, VIJAYA KRUSHNA VARMA
  13. Primary Health Care for Noncommunicable Diseases in the Philippines By Ulep, Valerie Gilbert T.; Uy, Jhanna; Casas, Lyle Daryll D.

  1. By: OHNO Taro; KITAMURA Yukinobu; MIYAZAKI Takeshi
    Abstract: Japan's middle class in recent years is declining in a similar way to the middle classes of other developed countries. However, since the tax system can reduce income disparity, it can affect the size of the middle class. This study employs household microdata from 1989-2014 to examine how taxes and social insurance premiums affect the size of the middle class in Japan. Further, the evolution of the effects of taxes and insurance premiums involves changes in the tax and social insurance systems (system reform effects) and income distribution or demographics (non-system reform effects). Therefore, this study decomposes the effects of taxes and social insurance premiums into system and non-system reform effects to capture the true contribution of the former. The research found that taxes and social insurance premiums mitigate the reduction of the middle-class share, while the system reform effect did not contribute to the change in this share. Thus, fundamentally reforming the tax systems for a greater effect to enhance the size of the middle class is necessary.
    Date: 2021–07
  2. By: Abrigo, Michael R.M.
    Abstract: The study uses incidence analysis to examine the financial costs and benefits from the Philippine’s National Health Insurance Program (NHIP) through the Philippine Health Insurance Corporation (PhilHealth) that accrue to different age groups and socio-economic classes. It finds that premium contributions to and benefits payment by PhilHealth are both pro-poor. As a public transfers program, PhilHealth reallocates resources from higher to lower income population. As a pseudo-pension program, it transfers resources from workers to finance health care of retirees. As a health insurance, its premium contributions are not actuarially fair given the benefits it provides. Over the course of an average Filipino’s lifetime, the NHIP is estimated to lose about 40 centavos for every peso an individual contributes directly or indirectly as premium to PhilHealth. <p> Comments to this paper are welcome within 60 days from date of posting. Email
    Keywords: social health insurance, Philippines, National Transfer Account, Benefit incidence analysis, Cost incidence analysis
    Date: 2020
  3. By: Petr Jakubik (European Insurance and Occupational Pensions Authority (EIOPA), Germany; Charles University in Prague, Faculty of Social Sciences, Institute of Economic Studies, Czech Republic); Saida Teleu (Maltese Financial Services Authority, Malta; Charles University in Prague, Faculty of Social Sciences, Institute of Economic Studies, Czech Republic)
    Abstract: Since the global financial crisis in 2007, stress tests have become standard tools for regulators and supervisors to assess the risks and vulnerabilities of financial sectors. To this end, the Insurance and Occupational Pensions Authority (EIOPA) regularly performs EU-wide insurance stress tests. This paper analyses the impact of the conducted exercises in 2014, 2016 and 2018 on the equity prices of insurance companies. Using an event study framework, we find a statistically significant impact only for the publication of the 2018 exercise results. Our empirical analysis further suggests that the final version of technical specifications for the 2014 exercise, the initiation of public consultation, and the published stress test scenario of the 2018 exercise contributed to the decline in systemic risk. To our best knowledge, this is the first paper that investigates this topic for the European insurance sector. Our empirical results could help improve the communication and design of future stress test exercises.
    Keywords: European insurance sector; EU-wide insurance stress test, systemic risk, event study, equity prices
    JEL: G23 G12 G14 G18
    Date: 2021–07
  4. By: Bhalotra, Sonia (University of Warwick, CEPR, IZA, IEA); Britto, Diogo G. C. (Bocconi University, BAFFI-CAREFIN, CLEAN Center for the Economic Analysis of Crime, GAPPE/UFPE, IZA); Pinotti, Paolo (Bocconi University, BAFFI-CAREFIN, CLEAN Center for the Economic Analysis of Crime, CEPR); Sampaio, Breno (Universidade Federal de Pernambuco, BAFFI-CAREFIN, CLEAN Center for the Economic Analysis of Crime, GAPPE/UFPE, IZA)
    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 off setting the income shock while reinforcing the exposure shock.
    Keywords: domestic violence ; unemployment ; mass layoffs ; unemployment insurance ; income shock ; exposure ; Brazil
    Date: 2021
  5. By: Olivier de Bandt; George Overton
    Abstract: Plantin & Rochet (2016) document how insurers often engage in risk-shifting years before the materialization of a failure. This paper empirically examines this claim by testing the mechanisms of insurance insolvency, using a first-of-its-kind international database assembled by the authors which merges data on balance sheet and income statements together with information on impairments over the last 30 years in four big countries (France, Japan, the UK and the US). Employing different fixed effects logistic specifications and parametric survival models, the paper presents evidence of profitability as a leading indicator of failures, as well as the higher likelihood of failure by smaller firms. In addition, there is an intrinsic asymmetry between the life and non-life insurance sectors. In the life sector, asset mix is highly significant in predicting an impairment, while operating inefficiency plays no role. In the non-life sector, the opposite proves true. <p> Plantin et Rochet (2007) étudient comment la survenance de la défaillance d’une entreprise d’assurance fait souvent suite à une prise de risque excessive plusieurs années avant l’événement. L’article examine empiriquement cette affirmation en testant les déterminants de la solvabilité des assurances. Il mobilise pour cela une base de données internationale, la première du genre, assemblée par les auteurs. La base intègre à la fois des informations sur les défaillances et des données de bilan et de compte de résultat sur les 30 dernières années dans quatre grands pays (France, Japon, Royaume-Uni et États-Unis). En utilisant différents modèles logistiques à effets fixes et des modèles de survie paramétriques, l'article montre comment la rentabilité constitue un indicateur avancé des défaillances et que la probabilité de défaut est plus élevée pour les entreprises d’assurance de petite taille. En outre, il existe une asymétrie intrinsèque entre les secteurs de l'assurance vie et de l'assurance non-vie. Dans le secteur de l'assurance-vie, la composition des actifs est très importante pour prédire une défaillance, tandis que l'inefficacité opérationnelle ne joue aucun rôle. Dans le secteur non-vie, les données disponibles indiquent que le contraire est vrai.
    Keywords: Insolvency Prediction, Insurance Default, Financial Crises; Prévision de la faillite, Insolvabilité assurantielle, Crises financières
    JEL: G22 G01 G11
    Date: 2020
  6. By: Isa, Berk Orkun; Yucel, Mustafa Eray
    Abstract: This paper lays down a mathematical model of political participation where participatory behavior functions as insurance against redistribution of resources. Abstracting a broad notion of political participation to its tangible bene�fits and costs, we elaborate the participatory behavior from the perspectives of Expected Utility and Cumulative Prospect Theory. Our elaboration reveals that the relative degrees of risk aversion and loss aversion yield a multiplicity of equilibria, sheds light on the recently observed absenteeism in political participation and suggest that participation would not increase unless the material domain of politics itself is altered.
    Keywords: Political Participation; Cumulative Prospect Theory; Risk Aversion; Insurance; Lobbying
    JEL: D72 P16
    Date: 2020–07–05
  7. By: Kristian Blickle (Federal Reserve Bank of New York); Markus Brunnermeier (Princeton University); Stephan Luck (Princeton University)
    Abstract: This paper studies a major financial panic, the run on the German banking system in 1931, to distinguish between banking theories that view depositors as demanders of liquidity and those that view them as providers of discipline. Our empirical approach exploits the fact that the German Crisis of 1931 was system-wide with cross-sectional variation in deposit flows as well as bank distress and took place in absence of a deposit insurance scheme. We find that interbank deposit flows predict subsequent bank distress early on. In contrast, wholesale depositors are more likely to withdraw from distressed banks at later stages of the run and only after the interbank market has started to collapse. Retail deposits are—despite the absence of deposit insurance—largely stable. Our findings emphasize the heterogeneity in depositor roles, with discipline being best provided through the interbank market.
    Keywords: Germany
    JEL: G01 G21 N20 N24
    Date: 2020–06
  8. By: Miguel Niño-Zarazúa (UNU-WIDER); Finn Tarp (University of Copenhagen)
    Abstract: In 2014, prior to the political transition of 2015 towards democracy, the government published the Myanmar National Social Protection Strategic Plan with the aim of supporting socio-economic development, and strengthening the resilience of vulnerable people against shocks and life cycle contingencies. In this study, we take stock of the social protection system in place in Myanmar until the end of 2020, paying attention to the design features, and levels of institutionalisation of these programmes. We conduct a poverty and inequality decomposition analysis as well as a benefit-incidence analysis to examine the degree of progressivity or regressivity of these programmes. Overall, we find low coverage rates of welfare benefits, with negligible poverty reducing effects at the national level. The contribution of welfare benefits to reducing inequality is mixed, with social insurance having disequalising effects while social assistance programmes have a more equalizing contribution to the distribution of income. Further simulation analysis indicates that expanding coverage under poverty targeting approaches would produce larger welfare gains than universal approaches in the delivery of welfare benefits, irrespective of the design features of programmes.
    Keywords: social protection, poverty, inequality, decomposition, benefit incidence analysis
    JEL: H53 H55 I31 I38 O15
    Date: 2021–07–27
  9. By: Nguyen, Cuong Viet
    Abstract: In this study, we examine characteristics of employment in FDI in Vietnam. Workers from FDI account for 5.6% of working people. Female and younger people are more likely to work the FDI sector. Compared with private and public sectors, the FDI sector has a lower share of workers who have tertiary education. The FDI sector has a high proportion of workers with social insurance, at 95%. However, there is a relatively large proportion of the FDI workers receiving daily wages and piece payment. The FDI workers have a high number of working hours and more likely to have overtime working hours. The FDI workers have lower wages per hour than those in the private and public sector. However, once observed characteristics of workers are controlled for, the FDI workers have higher hourly and monthly wages than the private as well as public workers. The proportion of FDI workers who moved out of the FDI sector was 11% over a three-month period and 31% over a two-year period. Older workers are more likely to move out of the FDI sector than young ones. There is no evidence that workers move out of the FDI sector after age 35.
    Keywords: FDI,employment,labor,Vietnam
    Date: 2021
  10. By: Sarwal, Rakesh; Prasad, Urvashi; Gopal, K. Madan; Kalal, Shoyabahmed; Kaur, Deepyot; Kumar, Anurag; Regy, Prasanth; Sharma, Jitendra
    Abstract: India’s healthcare industry has been growing at a Compound Annual Growth Rate of around 22% since 2016. At this rate, it is expected to reach USD 372 Billion in 2022. Healthcare has become one of the largest sectors of the Indian economy, in terms of both revenue and employment. In 2015, the healthcare sector became the fifth largest employer, employing 4.7 Million people directly. As per estimates by the National Skill Development Corporation (NSDC) healthcare can generate 2.7 Million additional jobs in India between 2017-22 -- over 500,000 new jobs per year. India’s healthcare industry comprises hospitals, medical devices and equipment, health insurance, clinical trials, telemedicine and medical tourism. These market segments are expected to diversify as an ageing population with a growing middle class increasingly favours preventative healthcare. Moreover, the rising proportion of lifestyle diseases caused by high cholesterol, high blood pressure, obesity, poor diet and alcohol consumption in urban areas is boosting demand for specialised care services. In addition to these demographic and epidemiological trends, COVID-19 is likely to catalyse long-term changes in attitudes towards personal health and hygiene, health insurance, fitness and nutrition as well as health monitoring and medical check-ups. The pandemic has also accelerated the adoption of digital technologies, including telemedicine. Further, there is a growing emphasis on and emergence of Public-Private Partnership models in India’s healthcare sector. The country’s relative cost competitiveness and availability of skilled labour are also making it an increasingly favoured destination for Medical Value Travel. On the policy front, the Indian Government is undertaking deep structural and sustained reforms to strengthen the healthcare sector; it has also announced conducive policies for encouraging Foreign Direct Investment (FDI). In fact, India’s FDI regime has been liberalised extensively. Currently, FDI is permitted up to 100% under the automatic route (i.e., the non resident investor or Indian company does not require approval from the Government of India for the investment) in the hospital sector and in the manufacture of medical devices. In the pharmaceutical sector, FDI is permitted up to 100% in greenfield projects and 74% in brownfield projects under the automatic route. India has emerged as one of the fastest-growing emerging economies over the last two decades, receiving large FDI inflows, which have grown from USD 2.5 Billion in 2000-01 to USD 50 Billion in 2019-20. The healthcare sector, in particular, has received heightened interest from investors over the last few years, with the transaction value increasing from USD 94 Million (2011) to USD 1,275 Million (2016) – a jump of over 13.5 times. All of these factors together create several opportunities for investment in India’s healthcare industry.
    Date: 2021–07–06
  11. By: Anatoli Segura (Banca d’Italia); Alonso Villacorta (University of California Santa Cruz)
    Abstract: We develop a novel framework featuring loss amplification through firm-bank linkages. We use it to study optimal intervention in a lockdown situation that creates cash shortfalls for firms, which must resort to bank lending. Firms’ increased debt reduces their output due to moral hazard. Banks need safe collateral to raise funds. Without intervention, aggregate risk constrains bank lending, amplifying output losses. Optimal government support provides sufficient aggregate risk insurance, and is implemented through transfers to firms and fairly-priced guarantees on banks’ debt. When aggregate risk is not too large, such guarantees can be financed through a procyclical taxation of firms’ profits.
    Keywords: Covid-19, cash shortfall, firms' debt, moral hazard, bank equity, aggregate risk, government interventions.
    JEL: G01 G20 G28
    Date: 2021–07
    Abstract: Route map to modernising and streamlining the agriculture sector in the country to achieve the following objectives 1. To double the agricultural production from the present level and achieve self-sufficiency in all food commodities and achieve 150% of actual consumption in India so that the remaining 50% can be exported or can be stored as buffer stock in the aftermath of famines or other unforeseen natural calamities. 2. To stop farmer suicides by increasing incomes 3. To generate rural employment and stop migration of people to urban areas 4. To modernise agriculture practices, harvesting technologies, marketing structure, procurement, storage facilities and public distribution system 5. To make every district of India self-sufficiency in food grain production in 80% of crops, each state in 90% of crops and country as a whole in 100 % of crops 6. To avoid cross-transportation of agricultural produce and thus reduce transport cost of agricultural produce. It benefits both farmers and consumers 7. To decrease farming input costs and increase minimum support price for all agriculture produce. 8. To gradually reduce dependence on chemical fertilisers and pesticides, and instead promote organic farming by using natural manures and pest control methods. 9. To ensure allocation of all agriculture subsidies only to real farmers and keep rich farmers away from subsidies. 10. To achieve food security, energy security and fodder security 11. To overcome hardships from monsoon failures and frequent floods with advanced water resources management on the ground and by using satellite technology 12. To provide marketing facilities for all agricultural produce 13. To create efficient mechanism to sanction insurance for damaged crops due to floods, famines, drought and cyclones.
    Keywords: Agriculture sector
    JEL: Q0 Q1 Q15 Q18 Q4 Q42
    Date: 2020–02–12
  13. By: Ulep, Valerie Gilbert T.; Uy, Jhanna; Casas, Lyle Daryll D.
    Abstract: Noncommunicable diseases (NCDs) have become the major cause of disease burden in the Philippines. In 2019, NCDs accounted for about 70 percent of the 600,000 deaths nationwide; this is projected to increase in the medium to long term. The premature deaths due to NCDs are increasing in a much faster rate in poorest communities while declining in relatively rich areas. The growing burden of NCDs in poor communities have implications on the poverty reduction efforts and economic prospects of the country. Despite the growing threat of NCDs, the Philippine health system remains historically designed and oriented to address infectious diseases and maternal and child health. This has led to episodic and fragmented delivery of health services--a model that has difficulty handling NCDs. As the country embarks to institute major reforms in the Universal Health Care Act towards a primary health care-oriented and integrated health system, this study will identify the specific challenges in governance, financing, service delivery, and health human resources that hinder the realization of comprehensive and continuous delivery of NCD services in local communities. <p>Comments to this paper are welcome within 60 days from date of posting. Email
    Keywords: noncommunicable diseases, primary health care, health systems, Universal Health Care Act
    Date: 2020

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