nep-ias New Economics Papers
on Insurance Economics
Issue of 2021‒09‒13
twelve papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Practical Application of Multi-Peril Crop Insurance (MPCI) By Olsen, Frayne; Stockton, Matthew C.
  2. Medical Expenditures over the Life Cycle: Persistent Risks and Insurance By FUKAI Taiyo; ICHIMURA Hidehiko; KITAO Sagiri; MIKOSHIBA Minamo
  3. Risk measures induced by efficient insurance contracts By Qiuqi Wang; Ruodu Wang; Ricardas Zitikis
  4. Did Trump's Trade War Impact the 2018 Election? By Emily J. Blanchard; Chad P. Bown; Davin Chor
  5. Early Retirement Provision for Elderly Displaced Workers By Kruse, Herman; Myhre, Andreas
  6. Capital Constraints and Risk Shifting: An Instrumental Approach By Alejandro Drexler; Thomas B. King
  7. The Right to Health and the Health Effects of Denials By Bhalotra, Sonia R.; Fernandez Sierra, Manuel
  8. Local Concentration in the Small Business Lending Market and Its Relationship to the Deposit Market By Ken Onishi
  9. Hedging and Competition By Erasmo Giambona; Anil Kumar; Gordon M. Phillips
  10. Forward guidance with unanchored expectations By Eusepi, Stefano; Gibbs, Chris; Preston, Bruce
  11. Three fundamental problems in risk modeling on big data: an information theory view By Jiamin Yu
  12. Prices and market power in mental health care: Evidence from a major policy change in the Netherlands By Rudy Douven; Chiara Brouns; Ron Kemp

  1. By: Olsen, Frayne; Stockton, Matthew C.
    Keywords: Risk and Uncertainty, Agribusiness, Marketing
    Date: 2021–08
  2. By: FUKAI Taiyo; ICHIMURA Hidehiko; KITAO Sagiri; MIKOSHIBA Minamo
    Abstract: This paper analyzes individuals' medical expenditure risks over the life-cycle and roles of the national health insurance system using nationwide administrative data of health insurance claims (NDB) in Japan. Health shocks are highly persistent and estimated distribution of lifetime medical expenditures varies greatly with the assumed order of persistence. We build a structural life-cycle model for males and females, and single and married households with different labor productivity and assets, and quantify economic and welfare effects of medical expenditure risks and the insurance system. The national health insurance characterized by age-dependent copay rates and progressive out-of-pocket ceilings protects households from expenditure risks well, and has significant effects on their life-cycle savings. Responses to health insurance reform are highly heterogeneous. In response to lower benefits, high-income households turn to self-insurance and increase savings, while low-income households reduce savings and consumption and many of them become recipients of welfare transfers. Welfare effects of such a reform also vary across households and low-income and unhealthy households fare worse than the average. We also show that effects of health insurance reform depend on the generosity of other welfare programs and differ across households.
    Date: 2021–08
  3. By: Qiuqi Wang; Ruodu Wang; Ricardas Zitikis
    Abstract: The Expected Shortfall (ES) is one of the most important regulatory risk measures in finance, insurance, and statistics, which has recently been characterized via sets of axioms from perspectives of portfolio risk management and statistics. Meanwhile, there is large literature on insurance design with ES as an objective or a constraint. A visible gap is to justify the special role of ES in insurance and actuarial science. To fill this gap, we study characterization of risk measures induced by efficient insurance contracts, i.e., those that are Pareto optimal for the insured and the insurer. One of our major results is that we characterize a mixture of the mean and ES as the risk measure of the insured and the insurer, when contracts with deductibles are efficient. Characterization results of other risk measures, including the mean and distortion risk measures, are also presented by linking them to different sets of contracts.
    Date: 2021–09
  4. By: Emily J. Blanchard (Dartmouth College); Chad P. Bown (Peterson Institute for International Economics); Davin Chor (Dartmouth College)
    Abstract: We find that Republican candidates lost support in the 2018 congressional election in counties more exposed to trade retaliation, but saw no commensurate electoral gains from US tariff protection. The electoral losses were driven by retaliatory tariffs on agricultural products, and were only partially mitigated by the US agricultural subsidies announced in summer 2018. Republicans also fared worse in counties that had seen recent gains in health insurance coverage, affirming the importance of health care as an election issue. A counterfactual calculation suggests that the trade war (respectively, health care) can account for five (eight) of Republicans' lost House seats.
    Keywords: Trade War, Trade Policy, Retaliatory Tariffs, Agricultural Subsidies, Health Insurance Coverage, Voting
    JEL: F13 F14
    Date: 2019–12
  5. By: Kruse, Herman; Myhre, Andreas
    Abstract: This paper studies the economic effects on re-employment and program substitution behavior among elderly displaced workers who exogenously lose eligibility for their early retirement option. We use detailed Norwegian matched employer-employee data containing information on bankruptcy dates and individual-level wealth, income, pensions and social security benefits. Our empirical strategy employs a regression discontinuity design, as job displacement before a certain age cut-off results in losing eligibility for early retirement benefits between ages 62–67 years in Norway. We find that reemployment rates are indistinguishable between workers who just retain eligibility for early retirement benefits and those who just do not. Meanwhile, those who lose eligibility offset 69% of their lost benefits through take-up of other social security benefits, where 51% comes from disability insurance and 13% from unemployment insurance. Our findings are particularly policy relevant as tightening of age-limits for old-age pensions is on the agenda in several OECD countries, while current economic hardship throughout the region may lead to increased job displacement for elderly workers.
    Keywords: early retirement, job displacement, labor supply, benefit substitution, social security
    JEL: H55 I38 J14 J26 J65
    Date: 2021–06–09
  6. By: Alejandro Drexler; Thomas B. King
    Abstract: When firms approach distress, whether they engage in asset substitution (risk shifting) or rebuild equity (risk management) may depend on their access to capital markets. The property-casualty insurance industry has two features that make it ideal for testing this hypothesis: (1) the main losses for insurers are exogenous events like hurricanes that provide a strong instrument for financial distress; and (2) many insurers are organized as mutual companies, which cannot issue stock. Consistent with the importance of capital constraints, stock companies issue new equity following a negative shock, while mutual companies increase the riskiness of their investment portfolios.
    Keywords: Risk shifting; insurance; reinsurance; capital structure
    JEL: G22 G32
    Date: 2021–09–02
  7. By: Bhalotra, Sonia R. (University of Warwick); Fernandez Sierra, Manuel (Universidad de los Andes)
    Abstract: We estimate the health costs of supply-side barriers to accessing medical care. The setting is Colombia, where citizens have a constitutional right to health care, but insurance companies that manage delivery impose restrictions on access. We use administrative data on judicial claims for health as a proxy for unmet demand. We validate this using the register recording all health service utilization, estimating that a one standard deviation increase in judicial claims is associated with pervasive decreases in utilization rates of between 0.25 and 0.71 standard deviations, including in medical consultations, procedures, hospitalizations and emergency care. These restrictions on access manifest in population health outcomes. We estimate that a one standard deviation increase in judicial claims increases the all-cause mortality rate by between 0.10 and 0.23 standard deviations. Increases in mortality are pervasive across causes, with the largest increase in deaths from certain cancers. They are also pervasive across the age and sex distribution but larger among individuals over the age of fifty and (weakly) among women and the low-income population.
    Keywords: health care, health insurance, mortality, right-to-health, litigation, universal-health-coverage, Colombia
    JEL: I11 I13 I18 K4
    Date: 2021–08
  8. By: Ken Onishi
    Abstract: This note analyzes competition and concentration in the small business lending market using data obtained from Community Reinvestment Act (CRA) disclosures and data on local branches from the Federal Deposit Insurance Corporation's (FDIC) Summary of Deposits (SOD). In 1963, the Supreme Court defined the product market for commercial banking.
    Date: 2021–08–24
  9. By: Erasmo Giambona; Anil Kumar; Gordon M. Phillips
    Abstract: We study how risk management through hedging impacts firms and competition among firms in the life insurance industry - an industry with over 7 Trillion in assets and over 1,000 private and public firms. We show that firms that are likely to face costly external finance increase hedging after staggered state-level financial reform that reduces the costs of hedging. Post reform impacted firms have lower risk and fewer negative income shocks. Product market competition is also impacted. Firms that previously are more likely to face costly external finance, lower price, increase policy sales and increase their market share post reform. The results are consistent with hedging allowing firms that face potential costly financial distress to decrease risk and become more competitive.
    JEL: D0 D22 D43 G22 G28 G31 G32 G33
    Date: 2021–09
  10. By: Eusepi, Stefano; Gibbs, Chris; Preston, Bruce
    Abstract: We study zero interest-rate policy in response to a large negative demand shock when long-run expectations can fall over time. Because falling expectations make monetary policy less effective by raising real interest rates, the optimal forward guidance policy makes large front-loaded promises to stabilize expectations. Policy is too stimulatory in the event of transitory shocks, but provides insurance against persistent shocks. The optimal policy is well-approximated by a constant calendar-based forward guidance, independent of the shock’s realised persistence. The insurance property distinguishes our paper from other bounded rationality papers that solve the forward guidance puzzle and generates important quantitative differences.
    JEL: E32 D83 D84
    Date: 2021–08–31
  11. By: Jiamin Yu
    Abstract: Since Claude Shannon founded Information Theory, information theory has widely fostered other scientific fields, such as statistics, artificial intelligence, biology, behavioral science, neuroscience, economics, and finance. Unfortunately, actuarial science has hardly benefited from information theory. So far, only one actuarial paper on information theory can be searched by academic search engines. Undoubtedly, information and risk, both as Uncertainty, are constrained by entropy law. Today's insurance big data era means more data and more information. It is unacceptable for risk management and actuarial science to ignore information theory. Therefore, this paper aims to exploit information theory to discover the performance limits of insurance big data systems and seek guidance for risk modeling and the development of actuarial pricing systems.
    Date: 2021–09
  12. By: Rudy Douven (CPB Netherlands Bureau for Economic Policy Analysis); Chiara Brouns (Menzis); Ron Kemp (ACM, EUR)
    Abstract: In the Dutch health care system of managed competition, insurers and mental health providers negotiate on prices for mental health services. Contract prices are capped by a regulator who sets a maximum price for each mental health service. In 2013, the majority of the contract prices equaled these maximum prices. We study price setting after a major policy change in 2014. In 2014, mental health care providers had to negotiate prices with each individual health insurer separately, instead of with all insurers collectively as in 2013. Moreover, after a cost-price revision, the regulator increased in 2014 maximum prices by about 10%. Insurers and mental health providers reacted to this policy change by setting most contract prices below the new maximum prices. We find that in 2014 mental health providers with more market power, i.e. a higher willingness to pay measure, contracted significantly higher prices. Some insurers negotiated significantly lower prices than other insurers but these differences are unrelated to an insurers’ market share.
    JEL: I11 I18 L11
    Date: 2020–05

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