nep-ias New Economics Papers
on Insurance Economics
Issue of 2022‒05‒09
sixteen papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Workers' Moral Hazard and Insurer Effort in Disability Insurance By Koning, Pierre; van Lent, Max
  2. Insurance for Catastrophes - Indemnity vs. Parametric Insurance with Imperfect Information By Eberhard Feess; Cathrin Jordan; Ilan Noy
  3. Unintended Consequences of "Mandatory" Flood Insurance By Kristian S. Blickle; João A. C. Santos
  4. Rural Pension System and Farmers' Participation in Residents' Social Insurance By Tao Xu
  5. Optimal Unemployment Insurance Requirements By Gustavo de Souza; Andre Luduvice
  6. Prediction of motor insurance claims occurrence as an imbalanced machine learning problem By Sebastian Baran; Przemys{\l}aw Rola
  7. Who Increases Emergency Department Use? New Insights from the Oregon Health Insurance Experiment By Denteh, Augustine; Liebert, Helge
  8. The 2020 US Presidential Election and Trump's Trade War By James Lake; Jun Nie
  9. Sick Leave Cuts and (Unhealthy) Returns to Work By Olivier Marie; Judit Vall Castello
  10. Optimal reinsurance under terminal value constraints By Benjamin Avanzi; Hayden Lau; Mogens Steffensen
  11. Promoting Opportunity Demonstration: Using Web Surveys for People with Disabilities By Michael Levere; David Wittenburg; Martha Kovac; Stacie Feldman; Stacy Dale
  12. Promoting Opportunity Demonstration: Summary of the Interim Findings By David Mann; David Wittenburg; Michael Levere
  13. Promoting Opportunity Demonstration: Final Evaluation Report By David Wittenburg; Michael Levere; Sarah Croake; Stacy Dale; Noelle Denny-Brown; Denise Hoffman; Rosalind Keith; David Mann; Shauna Robinson; Rebecca Coughlin; Monica Farid; Heather Gordon; Rachel Holzwart
  14. The Effects of Medicaid Expansion on Job Loss Induced Mental Distress during the COVID-19 Pandemic in the US By Mukhopadhyay, Sankar
  15. Promoting Opportunity Demonstration: Description of Overpayments and Stakeholder Experiences By Monica Farid; Sarah Croake; Denise Hoffman; Paul Shattuck; Aleksandra Wec; David Wittenburg
  16. Public Expenditures Under The 2011-2020 Poverty Reduction Strategy In China By Samuel Freije; Fuchang Zhao

  1. By: Koning, Pierre (Vrije Universiteit Amsterdam); van Lent, Max (Leiden University)
    Abstract: Disability Insurance (DI) may affect workers' outcomes such as their probability to enter DI, to recover, and their employment. Supplementary insurance may increase these moral hazard effects, but also increases the financial gains of private insurers to reduce benefit costs. With increased insurer activities to prevent and reintegrate workers, the overall effects of increased insurance coverage on workers' outcomes are thus ambiguous. This paper aims to separate worker and insurer responses to increased insurance, using unique administrative data on firms' supplementary DI insurance contracts. Using a Two-Way Fixed-Effects model on the sickness and employment rates of worker cohorts with and without supplementary contracts at some point in time, we find that insurer efforts compensate workers' moral hazard effects.
    Keywords: disability insurance, private insurance, moral hazard, insurer effort, return-to-work policies
    JEL: G22 G52 J3 J21
    Date: 2022–03
  2. By: Eberhard Feess; Cathrin Jordan; Ilan Noy
    Abstract: Insurance for natural hazards - earthquakes, hurricanes, or pandemics - is rarely comprehensively adopted without intense government intervention, and even then it is often only a minority of properties or businesses that are insured. Efforts to close this insurance gap include the introduction of parametric (index) insurance products for various catastrophic risks. We compare parametric to indemnity insurance in a simple model where the insurance company has superior information about the probability of the event (reversed asymmetric information). We find that indemnity insurance tends to be welfare superior, because the coverage provided to agents who underestimate the event probability is larger than with parametric cover. Since it could plausibly be argued that a majority of the population is underestimating the risks of many types of extreme events, this difference in social welfare is potentially substantial.
    Keywords: business interruption insurance, insurance for pandemics, parametric vs. indemnity insurance, reversed asymmetric information
    JEL: D81 D82 G22
    Date: 2022
  3. By: Kristian S. Blickle; João A. C. Santos
    Abstract: We document that the quasi-mandatory U.S. flood insurance program reduces mortgage lending along both the extensive and intensive margins. We measure flood insurance mandates using FEMA flood maps, focusing on the discreet updates to these maps that can be made exogenous to true underlying flood risk. Reductions in lending are most pronounced for low-income and low-FICO borrowers, implying that the effects are at least partially driven by the added financial burden of insurance. Our results are also stronger among non-local or more-distant banks, who have a diminished ability to monitor local borrower adherence to complicated insurance mandates. Overall, our findings speak to the unintended consequences of (well-intentioned) regulation. They also speak to the importance of factoring in affordability and enforcement feasibility when introducing mandatory standards.
    Keywords: insurance; unintended consequences; regulation; FEMA maps; flooding; mortgage lending; access to credit
    JEL: G21 G28 Q5 Q54
    Date: 2022–04–01
  4. By: Tao Xu
    Abstract: As the ageing population and childlessness are increasing in rural China, social pensions will become the mainstream choice for farmers, and the level of social pensions must be supported by better social insurance. The paper compares the history of rural pension insurance system, outlines the current situation and problems, analyses China Family Panel Studies data and explores the key factors influencing farmers' participation through an empirical approach. The paper shows that residents' social pension insurance is facing problems in the rural areas such as low level of protection and weak management capacity, which have contributed to the under-insured rate, and finds that there is a significant impact on farmers' participation in insurance from personal characteristics factors such as gender, age, health and (family) financial factors such as savings, personal income, intergenerational mobility of funds. And use of the Internet can help farmers enroll in pension insurance. The paper argues for the need to continue to implement the rural revitalisation strategy, with the government as the lead and the market as the support, in a concerted effort to improve the protection and popularity of rural pension insurance.
    Date: 2022–04
  5. By: Gustavo de Souza; Andre Luduvice
    Abstract: In the US, unemployed workers must satisfy two requirements to receive unemployment insurance (UI): a tenure requirement that stipulates the minimum qualifying work spell and a monetary requirement that determines a past minimum wage. This paper develops a heterogeneous agents model with history-dependent UI benefits in order to quantitatively obtain an optimal UI program design. We first conduct an empirical analysis using the discontinuity of UI rules at state borders and find that both the monetary and the tenure requirement reduce unemployment. The monetary requirement decreases the number of employers and the share of part-time workers, while the tenure requirement has the opposite effect. We then use a quantitative model to rationalize these results. When the tenure requirement is long, workers tend to accept more low paying jobs to become eligible for UI sooner and to protect themselves from risk, while the monetary requirement works conversely. We show that, because it mitigates moral hazard, the monetary requirement can generate higher welfare levels than an increase in the length of the tenure requirement.
    Keywords: Unemployment Insurance; UI Eligibility; Optimal UI
    JEL: E24 E61 J65
    Date: 2022–04–19
  6. By: Sebastian Baran; Przemys{\l}aw Rola
    Abstract: The insurance industry, with its large datasets, is a natural place to use big data solutions. However it must be stressed, that significant number of applications for machine learning in insurance industry, like fraud detection or claim prediction, deals with the problem of machine learning on an imbalanced data set. This is due to the fact that frauds or claims are rare events when compared with the entire population of drivers. The problem of imbalanced learning is often hard to overcome. Therefore, the main goal of this work is to present and apply various methods of dealing with an imbalanced dataset in the context of claim occurrence prediction in car insurance. In addition, the above techniques are used to compare the results of machine learning algorithms in the context of claim occurrence prediction in car insurance. Our study covers the following techniques: logistic-regression, decision tree, random forest, xgBoost, feed-forward network. The problem is the classification one.
    Date: 2022–04
  7. By: Denteh, Augustine (Georgia State University); Liebert, Helge (University of Zurich)
    Abstract: We provide new insights regarding the finding that Medicaid increased emergency department (ED) use from the Oregon experiment. We find meaningful heterogeneous impacts of Medicaid on ED use using causal machine learning methods. The treatment effect distribution is widely dispersed, and the average effect is not representative of most individualized treatment effects. A small group—about 14% of participants—in the right tail of the distribution drives the overall effect. We identify priority groups with economically significant increases in ED usage based on demographics and prior utilization. Intensive margin effects are an important driver of increases in ED utilization.
    Keywords: Medicaid, ED use, effect heterogeneity, causal machine learning, optimal policy
    JEL: H75 I13 I38
    Date: 2022–03
  8. By: James Lake; Jun Nie
    Abstract: The trade war initiated by the Trump administration is the largest since the US imposed the Smoot-Hawley tariffs in the 1930s and was still raging when he left office. We analyze how the trade war impacted the 2020 US Presidential election. Our results highlight the political salience of the trade war: US trade war tariffs boosted Trump’s support but foreign retaliation hurt Trump. In particular, the pro-Trump effects of US trade war tariffs were crucial for Trump crossing the recount thresholds in Georgia and Wisconsin. These effects cross political and racial lines, suggesting the mechanism operates through the impact on local economies rather than political polarization. Even more important politically, voters abandoned Trump in counties with large expansions of health insurance coverage since the Affordable Care Act, presumably fearing the roll-back of such expansion. Absent this anti-Trump effect, Trump would have been on the precipice of re-election by winning Georgia, Arizona, Nevada, and only losing Wisconsin by a few thousand votes.
    Keywords: 2020 US Presidential election, Trump, Affordable Care Act, health insurance, trade war, tariffs, retaliation
    JEL: D72 F13 F14 I18
    Date: 2022
  9. By: Olivier Marie; Judit Vall Castello
    Abstract: We investigate the impact on work absence of a massive reduction in paid sick leave benefits. We exploit a policy change that only affected public sector workers in Spain and compare changes in the number and length of spells they take relative to unaffected private sector workers. Our results highlight a large drop in frequency mostly offset by increases in duration. Overall, the policy did reduce the number of days lost to sick leave. For some however, return to work was premature as we document very large increases in both the proportion of relapses and, especially in the number of working accidents. The displacement towards this latter (unaffected) benefit cancels out almost two-fifths of the estimated gains in terms of days lost to absences from cutting sick leave generosity.
    Keywords: sickness insurance, paid sick leave, absenteeism, presenteeism, relapses, contagious diseases, benefit displacement, working accidents, Spain
    JEL: I12 I13 I18 J22 J28 J32
    Date: 2022
  10. By: Benjamin Avanzi; Hayden Lau; Mogens Steffensen
    Abstract: Optimal reinsurance is a perennial problem in insurance. The problem formulation considered in this paper is closely connected to the optimal portfolio problem in finance, with some important distinctions. In particular, the surplus of an insurance company is routinely approximated by a Brownian motion, as opposed to the geometric Brownian motion used to model assets in finance. Furthermore, exposure to risk is controlled "downwards" via reinsurance, rather than "upwards" via risky investments. This leads to interesting qualitative differences in the optimal solutions. In this paper, using the martingale method, we derive the optimal proportional, non cheap reinsurance control that maximises the quadratic utility of the terminal value of the insurance surplus. We also consider a number of realistic constraints on the terminal value: a strict lower boundary, the probability (Value at Risk) constraint, and the expected shortfall (conditional Value at Risk) constraints under the $\mathbb{P}$ and $\mathbb{Q}$ measures, respectively. Comparison of the optimal strategies with the optimal solutions in finance are of particular interest. Results are illustrated.
    Date: 2022–03
  11. By: Michael Levere; David Wittenburg; Martha Kovac; Stacie Feldman; Stacy Dale
    Abstract: This brief provides insights into using web surveys for a large sample to inform other data collection efforts involving disability beneficiaries.
    Keywords: Social Security Disability Insurance (SSDI), demonstration project, randomized controlled trial, survey mode, survey response, data collection
  12. By: David Mann; David Wittenburg; Michael Levere
    Abstract: This brief summarizes interim findings for the Promoting Opportunity Demonstration (POD) through 2019—the first year after enrollment was completed. POD is a randomized controlled trial that tests two versions of new SSDI work rules with a control group that is subject to current law rules.
    Keywords: Social Security Disability Insurance (SSDI), demonstration project, randomized controlled trial, benefit offset, implementation, counseling services
  13. By: David Wittenburg; Michael Levere; Sarah Croake; Stacy Dale; Noelle Denny-Brown; Denise Hoffman; Rosalind Keith; David Mann; Shauna Robinson; Rebecca Coughlin; Monica Farid; Heather Gordon; Rachel Holzwart
    Abstract: This report presents process, participation, and impact findings for the Promoting Opportunity Demonstration (POD) from 2018 through 2020. POD is a randomized controlled trial that tests two versions of new SSDI work rules with a control group that is subject to current law rules.
    Keywords: Social Security Disability Insurance (SSDI), demonstration project, randomized controlled trial, benefit offset, impact findings
  14. By: Mukhopadhyay, Sankar (University of Nevada, Reno)
    Abstract: The COVID-19 pandemic led to an unprecedented level of job losses in the U.S., where a job loss is also associated with the loss of health insurance. This paper uses data from the 2020 Household Pulse Survey (HPS) and difference-in-difference (DD) regressions to estimate the effect of the Medicaid expansion on anxiety and depression associated with job loss. Estimates show that the respondents who live in expansion states are 96.6% (36.3%) more likely to have Medicaid coverage, and correspondingly, 14.2% (7.6%) less likely to have moderate to severe mental distress following their job loss (a family member's job loss) compared to those living in non-expansion states. Further explorations suggest that the economic security provided by Medicaid is as important (if not more) as the access or utilization to healthcare. The difference-in-difference-in-difference (DDD) estimates using just above and below the Medicare eligibility age (65) confirm these results.
    Keywords: job loss, depression, anxiety, mental health, COVID-19, Medicaid
    JEL: I12 I18 J6
    Date: 2022–03
  15. By: Monica Farid; Sarah Croake; Denise Hoffman; Paul Shattuck; Aleksandra Wec; David Wittenburg
    Abstract: This brief examines how Promoting Opportunity Demonstration (POD) treatment and control group members experienced overpayments. POD is a randomized controlled trial that tests two versions of new SSDI work rules with a control group that is subject to current law rules.
    Keywords: Social Security Disability Insurance (SSDI), demonstration project, overpayments, randomized controlled trial, impact analysis, process analysis
  16. By: Samuel Freije; Fuchang Zhao
    Abstract: The official poverty reduction strategy defined by the “Outline for Development Oriented Poverty Reduction for China’s Rural Areas (2011-2020)”, has a two-pronged approach. On the one hand, economic development that creates employment opportunities for the poor. On the other hand, expansion of the social protection system to protect the vulnerable. This study describes public expenditures on poverty reduction using available official data for the period 2011-2020. It lists the main programs, evolution of public expenditures, how these expenditures are distributed across provinces, how they compare to other countries in the World and what has been their effect on poverty reduction in China. The study shows that resources allocated to anti-poverty development programs, and to social insurance, have more than doubled under the period of study but expenditures in social assistance, however, have seen a decline since the middle of the decade. This is the consequence of a growing percentage of the population being covered by social insurance and a declining number of beneficiaries of social assistance programs. Despite this rapid increase, expenditures in social assistance and social insurance remain at average levels, when compared in international perspective. There is also some evidence that the country has advanced in terms of coverage but the sufficiency (i.e., the average amount of benefits in relation to standards of living) can still improve significantly. Finally, the study also finds evidence that anti-poverty development programs have a small impact on poverty reduction, but not statistically significant in our sample. On the other hand, productivity growth in agriculture remains the most important driver of poverty reduction although this impact seems less robust than in the past.
    Keywords: China, Poverty, Welfare Programs
    JEL: I38 O53 P36
    Date: 2022–04

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