nep-ias New Economics Papers
on Insurance Economics
Issue of 2021‒10‒04
thirteen papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Progress Together: Transforming the Nation's Medicaid and CHIP Data By Carol Irvin
  2. Long Term Care Insurance with State-Dependent Preferences By Philippe de Donder; Marie-Louise Leroux
  3. Formal insurance and altruism networks By Tizié Bene; Yann Bramoullé; Frédéric Deroïan
  4. Weather index insurance: Promises and challenges of promoting social and ecological resilience to climate change By Yu, Lu; Aleksandrova, Mariya
  5. Liquidity Provision and Co-insurance in Bank Syndicates By Kevin F. Kiernan; Vladimir Yankov; Filip Zikes
  6. Two-step actuarial valuations By Karim Barigou; Dani\"el Linders; Fan Yang
  7. Low Demand for Reverse Mortgages in Canada: Price, Knowledge or Preferences? By Ismaël Choinière Crèvecoeur; Pierre-Carl Michaud
  8. Eine Europäische Arbeitslebensversicherung? Auf den Spuren des Revolutionärs Immanuel Kant By Schmid, Günther
  9. Estimating value-added returns to labor training programs with causal machine learning By Angell, Mintaka; Gold, Samantha; Hastings, Justine S.; Howison, Mark; Jensen, Scott; Keleher, Niall; Molitor, Daniel; Roberts, Amelia
  10. The leverage effect of bank disclosures By König, Philipp Johann; Laux, Christian; Pothier, David
  11. One-Third of Family Physicians Remain in Independently Owned Practice, 2017–2019 By Diane Rittenhouse; Andrew W. Bazemore; Zachary J. Morgan; Lars E. Peterson
  12. Multi-Transformer: A New Neural Network-Based Architecture for Forecasting S&P Volatility By Eduardo Ramos-P\'erez; Pablo J. Alonso-Gonz\'alez; Jos\'e Javier N\'u\~nez-Vel\'azquez
  13. Food security in times of crisis: Poor developing countries are different By Brüntrup, Michael

  1. By: Carol Irvin
    Abstract: Since 1999, states have been required to submit to the Centers for Medicare & Medicaid Services (CMS) detailed enrollment and claims information for beneficiaries of Medicaid and the Children’s Health Insurance Program (CHIP).
    Keywords: Transformed Medicaid Statistical Information System (T-MSIS), national data system for Medicaid and CHIP, T-MSIS Analytic Files (TAF)
  2. By: Philippe de Donder (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Marie-Louise Leroux (UCL - Université Catholique de Louvain)
    Abstract: We study the demand for actuarially fair Long Term Care (LTC hereafter) insurance in a setting where autonomous agents only care for daily life consumption while dependent agents also care for LTC expenditures. We assume that dependency decreases the marginal utility of daily life consumption. We rst obtain that some agents optimally choose not to insure themselves, while no agent wishes to buy complete insurance. We then show that the comparison of marginal utility of income (as opposed to consumption) across health states depends on (i) whether agents do buy LTC insurance at equilibrium or not, (ii) the comparison of the degree of risk aversion for consumption and for LTC expenditures, and (iii) the income level of agents. Our results then oer testable implications that can explain (i) why few people buy Long Term Care insurance and (ii) the discrepancies between various empirical works when measuring the extent of state-dependent preferences for LTC.
    Keywords: Risk Aversion,Actuarially Fair Insurance,Long Term Care Insurance Puzzle,State-dependent Preferences.
    Date: 2021–09–13
  3. By: Tizié Bene (Aix-Marseille Univ, CNRS, AMSE, Marseille, France); Yann Bramoullé (Aix-Marseille Univ, CNRS, AMSE, Marseille, France); Frédéric Deroïan (Aix-Marseille Univ, CNRS, AMSE, Marseille, France)
    Abstract: We study how altruism networks affect the adoption of formal insurance. Agents have private CARA utilities and are embedded in a network of altruistic relationships. Incomes are subject to both a common shock and a large idiosyncratic shock. Agents can adopt formal insurance to cover the common shock. We show that ex-post altruistic transfers induce interdependence in ex-ante adoption decisions. We characterize the Nash equilibria of the insurance adoption game. We show that adoption decisions are substitutes and that the number of adopters is unique in equilibrium. The demand for formal insurance is lower with altruism than without at low prices, but higher at high prices. Remarkably, individual incentives are aligned with social welfare. We extend our analysis to CRRA utilities and to a fixed utility cost of adoption.
    Keywords: formal insurance, informal transfers, altruism networks
    JEL: C72 D85
    Date: 2021–09
  4. By: Yu, Lu; Aleksandrova, Mariya
    Abstract: Rural communities are particularly vulnerable to weather shocks and ecosystem decline. Traditionally, farmers have adapted to climate variability and extremes through various risk management strategies, either individually or cooperatively. However, climate change amplifies the frequency and intensity of extreme weather events and exacerbates environmental degradation processes. Market-based risk transfer instruments are now being developed as complements to these conventional risk management strategies to shield rural households from increasing climate risks. At present, risk transfer solutions play a central role in the global climate and development agenda. International- and regional-level initiatives such as the InsuResilience Global Partnership support vulnerable developing countries to increase their financial protection coverage through climate risk finance and insurance, including through innovative micro-level schemes such as weather index insurance. Over the last decade, index-based weather insurance has been gaining attention in the climate resilience discourse. These schemes compensate insured individuals based on a pre-defined weather index instead of individual losses, as with traditional types of insurance. Therefore, this instrument has several advantages, including greater time- and cost-effectiveness and reduced moral hazard risk. Although weather-index insurance holds great promise, there are several challenges in designing and promoting it in developing countries. First, on the demand side, there is a lack of accessibility to affordable insurance, especially for the poorest rural populations exposed to climate hazards. Second, on the supply side, insurance providers are facing an elevated risk of paying larger claims due to the increasing frequency and severity of weather extremes, while reinsurance services are often missing. Third, the ecological effects of implementing weather index microinsurance initiatives receive little attention in research and policy. Yet, protecting the environment and building ecological resilience are critical policy dimensions of climate risk management in rural regions, where the poor disproportionately depend on ecosystem goods and services for a living, as they often lack alternative livelihood strategies. Looking into the key challenges to microinsurance initiatives and drawing upon findings of a review of literature on weather index insurance and field research, this Briefing Paper derives recommendations for development cooperation, governments and insurers for an enhanced action agenda on climate risk insurance. The discussion is focused on the specific case of weather index insurance for the rural poor at the micro level. We emphasise the importance of enhancing knowledge on the potential positive and negative ecological effects of weather insurance schemes, and the need to develop a diverse set of climate risk management strategies for the poor, including social protection mechanisms.
    Date: 2021
  5. By: Kevin F. Kiernan; Vladimir Yankov; Filip Zikes
    Abstract: We study the capacity of the banking system to provide liquidity to the corporate sector in times of stress and how changes in this capacity affect corporate liquidity management. We show that the contractual arrangements among banks in loan syndicates co-insure liquidity risks of credit line drawdowns and generate a network of interbank exposures. We develop a simple model and simulate the liquidity and insurance capacity of the banking network. We find that the liquidity capacity of large banks has significantly increased following the introduction of liquidity regulation, and that the liquidity co-insurance function in loan syndicates is economically important. We also find that borrowers with higher reliance on credit lines in their liquidity management have become more likely to obtain credit lines from syndicates with higher liquidity. The assortative matching on liquidity characteristics has strengthened the role of banks as liquidity providers to the corporate sector.
    Keywords: Liquidity insurance; Liquidity regulation; Interbank networks; Syndicated credit lines
    JEL: G21 G18 L14
    Date: 2021–09–24
  6. By: Karim Barigou (ISFA); Dani\"el Linders (UvA); Fan Yang
    Abstract: We introduce the class of actuarial-consistent valuation methods for insurance liabilities which depend on both financial and actuarial risks, which imposes that all actuarial risks are priced via standard actuarial principles. We propose to extend standard actuarial principles by a new actuarialconsistent procedure, which we call "two-step actuarial valuations". In the coherent setting, we show that actuarial-consistent valuations are equivalent to two-step actuarial valuations. We also discuss the connection with "two-step market-consistent valuations" from Pelsser and Stadje (2014). In particular, we discuss how the dependence structure between actuarial and financial risks impacts both actuarial-consistent and market-consistent valuations.
    Date: 2021–08
  7. By: Ismaël Choinière Crèvecoeur; Pierre-Carl Michaud
    Abstract: High borrowing costs, limited knowledge and preferences could explain why few Canadians purchase reverse mortgages, an asset decumulation product that is appealing to those who are house-rich but cash-poor. In this paper, we first use an asset pricing model to calculate the actuarial fair costs of guarantees built into reverse mortgage products in Canada and compare those estimates to prevailing interest rates in the market for these products. We also investigate whether Canadians understand reverse mortgages and whether low demand originates on the preference side by conducting a stated-preference experiment with 3000 Canadians. We manipulate characteristics of reverse mortgages, including the interest rate, to tease out how sensitive Canadians are to these characteristics. Our results suggest that observed interest rates are high relative to actuarially fair rates and that consumers are somewhat price sensitive in addition to demonstrating little knowledge of these products and low demand overall.
    Keywords: reverse mortgages, savings, retirement planning, insurance.
    JEL: G21 R21
    Date: 2021
  8. By: Schmid, Günther
    Abstract: Die Arbeitsmarktpolitik auf europäischer Ebene hat durch die Krisen der letzten Jahre wiederholt neue Impulse erhalten. Mit den Initiativen für eine europäische Arbeitslosenrückversicherung, einen europäischen Mindestlohn, eine europäische Jugendgarantie und - vor kurzem - Europäische Sozialanleihen, ist die EU mittlerweile ein arbeitsmarktpolitischer Akteur, der die nationalen Aktivitäten ergänzt oder unterstützt. Die COVID-19-Krise könnte ein Gelegenheitsfenster sein, den Europäischen Sozialfonds um bestimmte Elemente einer Europäischen Arbeitslebensversicherung weiter zu entwickeln. Das Ziel sollte nicht nur darin bestehen, in europäischer Solidarität auf zyklische oder pandemische Krisen des Arbeitsmarkts zu reagieren, sondern auch die nationalen Kapazitäten zu stärken, um Einkommensrisiken im gesamten Erwerbsverlauf abzusichern. Die Innovation dieses Essay besteht darin, die Grundzüge einer Arbeitslebensversicherung auf die revolutionäre Trias "Freiheit, Gleichheit, Selbständigkeit" von Immanuel Kant zurückzuführen. Kants Konzept der "bürgerlichen Selbständigkeit" - anstelle der "Solidarität" - erweist sich als überaus fruchtbar, um ein institutionell fundiertes Grundrecht auf würdige Arbeit zu begründen.
    Keywords: Europa,EU,Sozialunion,Arbeitsmarkt,würdige Arbeit,Arbeitsmarktpolitik,Löhne/Mindestlohn,Arbeitslosenversicherung,Gerechtigkeit,Arbeitsrecht,Arbeitsverhältnis,Europe,EU,Social Union,labour market,decent work,labour market policy,wages/minimumwages,unemployment insurance,justice,labour law,labour relationship
    Date: 2021
  9. By: Angell, Mintaka; Gold, Samantha; Hastings, Justine S.; Howison, Mark; Jensen, Scott; Keleher, Niall; Molitor, Daniel; Roberts, Amelia
    Abstract: Technology may displace tens of millions of workers in the coming decades. Part of the explanation for the projected displacement is an expanding mismatch in skills that employers seek and the skills that workers possess. Effects of labor force displacement disproportionately affect low-income workers and workers within industries where technological change replaces labor. As a result, a great deal of emphasis is placed on training and reskilling workers to ease transitions into new careers. However, utilization of training programs may be below optimal levels if workers are uncertain about the returns to their investment in training. While the U.S. spends billions of dollars annually on reskilling programs and unemployment insurance, there are few measures of program effectiveness that workers and government can use to guide training investment decisions and ensure delivery of valuable reskilling and improved outcomes. In a nationwide conjoint survey experiment, we find job seekers prefer information on the value-added returns to earnings following enrollment in training and reskilling programs. We identify a clear demand for value-added measures. For every 10% increase in expected earnings, workers are 17.4% more likely to express interest in a training program. To meet this demand for information, governments can provide return on investment measures. Fortunately, the data to estimate these returns are available in state administrative data. We demonstrate a causal machine learning method that provides these missing causal estimates of value-added that workers prefer and that can provide correct incentives in the market for labor training. Focusing on a set of workforce training programs in Rhode Island, our causal machine learning estimates suggest that training increases enrollees’ future quarterly earnings by \$605. We estimate that return on investment ranges between -\$1,570 in quarterly earnings for the lowest value-added program to \$3,470 in quarterly earnings for the highest value-added program.
    Date: 2021–09–24
  10. By: König, Philipp Johann; Laux, Christian; Pothier, David
    Abstract: The general view underlying bank regulation is that bank disclosures providemarket discipline and reduce banks' risk-taking incentives. We show that bankdisclosures can increase bank leverage and bank risk. The reason stems from theinteraction between insured and uninsured debt. Bank disclosures reduce the agencyproblem between uninsured debt and equity, thereby lowering the cost of leverage forbanks. By issuing uninsured short-term debt that is repaid ahead of insured depositswhen economic conditions deteriorate, banks dilute insured deposits. Higher levelsof uninsured short-term debt increase the subsidy provided by deposit insurance,which increases banks' risk-taking incentives. We identify conditions under whichthis negative leverage effect dominates the standard market discipline effect, so thatproviding market discipline through bank disclosures increases banks' risk.
    Keywords: Bank Disclosures,Market Discipline,Bank Leverage
    JEL: D80 G21 G14
    Date: 2021
  11. By: Diane Rittenhouse; Andrew W. Bazemore; Zachary J. Morgan; Lars E. Peterson
    Abstract: The rise of health system and hospital ownership of primary care practices raises policy questions about the survival of independent physician-owned practices.
    Keywords: Delivery of Health Care, Health System Affiliation, Physicians, Policy, Practice Organization, Primary Health Care, Quality of Health Care
  12. By: Eduardo Ramos-P\'erez; Pablo J. Alonso-Gonz\'alez; Jos\'e Javier N\'u\~nez-Vel\'azquez
    Abstract: Events such as the Financial Crisis of 2007-2008 or the COVID-19 pandemic caused significant losses to banks and insurance entities. They also demonstrated the importance of using accurate equity risk models and having a risk management function able to implement effective hedging strategies. Stock volatility forecasts play a key role in the estimation of equity risk and, thus, in the management actions carried out by financial institutions. Therefore, this paper has the aim of proposing more accurate stock volatility models based on novel machine and deep learning techniques. This paper introduces a neural network-based architecture, called Multi-Transformer. Multi-Transformer is a variant of Transformer models, which have already been successfully applied in the field of natural language processing. Indeed, this paper also adapts traditional Transformer layers in order to be used in volatility forecasting models. The empirical results obtained in this paper suggest that the hybrid models based on Multi-Transformer and Transformer layers are more accurate and, hence, they lead to more appropriate risk measures than other autoregressive algorithms or hybrid models based on feed forward layers or long short term memory cells.
    Date: 2021–09
  13. By: Brüntrup, Michael
    Abstract: The corona crisis has taken the world captive. While there is broad discussion of the immediate risks of the pandemic, the same can rarely be said of the immense impact that the virus is expected to have on food security for those living in absolute poverty. This impact is resulting primarily from lockdown measures aimed at reducing infection rates and is already having a detrimental effect on all four pillars of food security through many cause-and-effect chains: Access to food will deteriorate tremendously if incomes fall and purchasing power dwindles, as most likely will food availability as a result of the difficulties and losses in terms of inputs, harvests, trade and transportation. The new instability could easily spread to other areas such as migration, security and statehood. Women especially are at risk, as are children in many cases. Different types of households are affected in very different ways. The first to be hit hardest by this crisis will be households with no connection to the agricultural sector, that is, the urban poor for the most part. Those that do have agricultural links could benefit from food transfers or (partially) migrate back to their home regions. The impact of this crisis on the food situation of smallholder subsistence households, which describes most of the world's poorest families, will be smaller in the short term at least (unlike in the case of natural crises). Larger agricultural enterprises capable of producing a reliable supply of food for the market should prove to be a pillar of stability during and after the crisis, provided the markets they serve do not suffer massive collapse. At overall level, the impact of the corona crisis on nutrition, alongside the design of lockdown measures, depends in particular on the degree of economic development, the extent to which the agricultural sector is separated from the rest of the economy and the scope that the state and prosperous sectors of society have and retain for making transfers. When it comes to balancing measures to tackle the coronavirus with those for economic stimulus, greater emphasis must be placed on the economy in poorer nations than in wealthier ones. Lockdown measures pose a risk to life and health in poor countries. It should be clearly stressed at this point that the "economy" refers in this context to the complex results chains on the way to food security and not simply to growth and jobs. Corona strategies in the poor South should thus look different to those in the global North and in emerging economies. For development cooperation, this means in the first instance assisting with the development of specific local strategies. Initiatives must flexibly address awareness-raising, health and hygiene in particular in the short term and, where necessary, include cash and food transfers and employment programmes. Economic structures and actors should be protected and supported in this process. Resilience in the face of the corona epidemic and other epidemics can be boosted in the medium term by promoting sustainable agricultural and food systems in particular. In so doing, it is vital to avoid neglecting resilience with regard to other types of crisis in which other cause-and-effect chains are operating in some cases and in which other relevant measures are thus required. For instance, climate-related crises often harm the local agricultural sector, and so access to the international agricultural market serves as a key means of protection. Research shows that employing a combination of economic diversity, reserve-building, open agricultural markets, insurance policies and social security systems is the most effective way to achieve resilience across the board.
    Date: 2020

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