nep-ias New Economics Papers
on Insurance Economics
Issue of 2022‒07‒18
23 papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Does Public Policy Affect Attitudes? Evidence from Age-Based Health Insurance Coverage Policies in the United States By Yörük, Baris
  2. Non-life Insurance Market and Macroeconomic Indicators in Baltic States By Dimitar Mihaela Simionescu
  3. Performance Pay in Insurance Markets: Evidence from Medicare By Michele Fioretti; Hongming Wang
  4. Risk-sharing Rules and their properties with applications to peer-to-peer insurance By Michel Denuit; Jan Dhaene; Christian Y Robert
  5. Advantageous Selection Without Moral Hazard (with an Application to Life Care Annuities) By Philippe De Donder; Marie-Louise Leroux; François Salanié
  6. Some Optimisation Problems in Insurance with a Terminal Distribution Constraint By Katia Colaneri; Julia Eisenberg; Benedetta Salterini
  7. Risk Management and Internal Control System of Deposit Insurers By International Association of Deposit Insurers
  8. Social insurance for long-term care By Karagiannidou, Maria; Wittenberg, Raphael
  9. The Lock-In Effects of Part-Time Unemployment Benefits By Hélène Benghalem; Pierre Cahuc; Pierre Villedieu
  10. The Fairness of Machine Learning in Insurance: New Rags for an Old Man? By Laurence Barry; Arthur Charpentier
  11. Ways to resolve a financial cooperative while keeping the cooperative structure By International Association of Deposit Insurers
  12. Colombia: Financial Sector Assessment Program-Technical Note-Crisis Management, Resolution, and Safety Nets By International Monetary Fund
  13. The effect of declining unemployment benefits on transitions to employment: Evidence from Belgium By Andrea Salvatori
  14. Mutual Organizations, Mutual Societies By Edith Archambault
  15. Covid-19 and the self-employed - ten months into the crisis By Jack Blundell; Stephen Machin; Maria Ventura
  16. Growing Apart: Declining Within- and Across-Locality Insurance in Rural China By Orazio Attanasio; Costas Meghir; Corina Mommaerts; Yu Zheng
  17. On the closed-form expected NPVs of the double barrier strategy for regular diffusions under the bail-out setting By Chongrui Zhu
  18. On Household Costs Indices By Martin Weale; Andrew Aitken
  19. Updating a Claims-Based Measure of Low-Value Services Applicable to Medicare Fee-for-Service Beneficiaries By Chris Fleming; Eunhae Shin; Rhea Powell; Dmitriy Poznyak; Arvin Javadi; Claire Burkhart; Arkadipta Ghosh; Eugene Rich
  20. COVID-19 and Deposit Insurer Fund Sizes By Bert Van Roosebeke; Ryan Defina
  21. IMF Engagement on Pension Issues in Surveillance and Program Work By International Monetary Fund
  22. What Is Corporate Bond Market Distress? By Nina Boyarchenko; Richard K. Crump; Anna Kovner; Or Shachar
  23. The Effect of Removing Early Retirement on Mortality By Cristina Belles; Sergi Jiménez; Han Ye

  1. By: Yörük, Baris (University at Albany, SUNY)
    Abstract: The existing literature provides evidence that public opinion and attitudes often affect public policy. However, little is known on how public policy might affect public attitudes and norms. I present new evidence on this topic by using age-based health insurance policies in the United States as natural experiments. I first exploit the discrete change in insurance coverage rates at age 26 due to the Affordable Care Act's dependent coverage mandate and show that this policy is associated with statistically significant deterioration in attitudes towards the necessity of health insurance among young adults who are affected by this policy the most. Next, I show that gaining health insurance at 65 due to the onset of Medicare does not have a significant impact on attitudes towards health insurance among the elderly. These findings are widespread across different demographic groups, robust under alternative model specifications, observed only after the policies are adopted, and highlight the importance of age in attitude formation.
    Keywords: attitudes, beliefs, health insurance coverage, public policy
    JEL: I12 I13 I18
    Date: 2022–06
  2. By: Dimitar Mihaela Simionescu (Institute for Economic Forecasting of the Romanian Academy)
    Abstract: Knowing that insurance market might be sensitive to economic evolutions, the aim of this paper is to investigate the effect of few macroeconomic indicators on non-life insurance market in the Baltic States in the period 1993-2020. The results based on panel data models and panel cointegration suggest a low impact of economic growth on non-life insurance market described by direct premium written, insurance density, insurance penetration for non-life segment. Expenditure on tertiary education has a more significant impact on non-life insurance market, while growth in unemployment rates reduces the development of this market. All in all, this study validates the hypothesis that people with higher education are more eager to buy insurance products. On the other hand, the development of this sector has not determined yet sustainable development of the Baltic economies.
    Keywords: non-life insurance market, direct premium written, insurance density, insurance penetration
    JEL: C51 C53
    Date: 2022–06
  3. By: Michele Fioretti (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique); Hongming Wang (Hitotsubashi University)
    Abstract: Public procurement bodies increasingly resort to pay-for-performance contracts to promote efficient spending. We show that firm responses to pay-for-performance can widen the inequality in accessing social services. Focusing on the quality bonus payment initiative in Medicare Advantage, we find that higher quality-rated insurers responded to bonus payments by selecting healthier enrollees with premium differences across counties. Selection is profitable because the quality rating fails to adjust for differences in enrollee health. Selection inflated the bonus payments and shifted the supply of high-rated insurance to the healthiest counties, reducing access to lower-priced, higher-rated insurance in the riskiest counties.
    Keywords: Pay-for-Performance,Medicare Advantage,Risk Selection,Quality Ratings,Health Insurance Access
    Date: 2021–05–01
  4. By: Michel Denuit; Jan Dhaene; Christian Y Robert
    Date: 2021–11–23
  5. By: Philippe De Donder; Marie-Louise Leroux; François Salanié
    Abstract: Advantageous (or propitious) selection occurs when an increase in the premium of an insurance contract induces high-cost agents to quit, thereby reducing the average cost among remaining buyers. Hemenway (1990) and many subsequent contributions motivate its advent by differences in risk-aversion among agents, implying different prevention efforts. We argue that it may also appear in the absence of moral hazard, when agents only differ in riskiness and not in (risk) preferences. We first show that profit-maximization implies that advantageous selection is more likely when markup rates and the elasticity of insurance demand are high. We then move to standard settings satisfying the single-crossing property and show that advantageous selection may occur when several contracts are offered, when agents also face a non-insurable background risk, or when agents face two mutually exclusive risks that are bundled together in a single insurance contract. We exemplify this last case with life care annuities, a product which bundles long-term care insurance and annuities, and we use Canadian survey data to provide an example of a contract facing advantageous selection.
    Keywords: propitious selection, positive or negative correlation property, contract bundling, long-term care insurance, annuity
    JEL: D82 I13
    Date: 2022
  6. By: Katia Colaneri; Julia Eisenberg; Benedetta Salterini
    Abstract: In this paper, we study two optimisation settings for an insurance company, under the constraint that the terminal surplus at a deterministic and finite time $T$ follows a normal distribution with a given mean and a given variance. In both cases, the surplus of the insurance company is assumed to follow a Brownian motion with drift. First, we allow the insurance company to pay dividends and seek to maximise the expected discounted dividend payments or to minimise the ruin probability under the terminal distribution constraint. Here, we find explicit expressions for the optimal strategies in both cases: in discrete and continuous time settings. Second, we let the insurance company buy a reinsurance contract for a pool of insured or a branch of business. To achieve a certain level of sustainability (i.e. the collected premia should be sufficient to buy reinsurance and to pay the occurring claims) the initial capital is set to be zero. We only allow for piecewise constant reinsurance strategies producing a normally distributed terminal surplus, whose mean and variance lead to a given Value at Risk or Expected Shortfall at some confidence level $\alpha$. We investigate the question which admissible reinsurance strategy produces a smaller ruin probability, if the ruin-checks are due at discrete deterministic points in time.
    Date: 2022–06
  7. By: International Association of Deposit Insurers
    Abstract: The paper provides a starting point for further research involving an in-depth analysis of specific technical aspects of the risk management framework and internal control system. Handbooks or 'How to Apply' tools may also be useful to IADI Members. Finally, the Risk Management and Internal Controls Technical Committee deems the Guidance Points suitable for potential integration into the IADI Core Principles.
    Keywords: deposit insurance, bank resolution
    JEL: G21 G33
    Date: 2020–12
  8. By: Karagiannidou, Maria; Wittenberg, Raphael
    Abstract: The issue of how best to finance long-term care (LTC) is the subject of recent reforms, forthcoming reforms or continuing debate in various countries and remains as relevant and challenging as ever. LTC services are crucial to the wellbeing of large numbers of older adults who need help with everyday tasks. Demand for LTC for older adults is projected to rise across developed and developing countries as the number of older adults rises. Supply of care services is likely to remain constrained due to shortages of long-term care workforce and financial constraints in many countries, and the financial risks associated with LTC remain. Financing of LTC is a complicated issue which raises considerations of economic efficiency and incentives, equity including intergenerational equity, the balance of risk between public and private funding, and sustainability of public expenditures. The aim of this paper is to discuss analytically the case for social insurance as an equitable and efficient way to finance LTC. The paper considers social insurance systems, especially in Germany and Japan, in comparison with safety net tax funded systems such as in England and the USA and more generous tax funded systems such as in Sweden and Denmark. Social insurance has advantages and disadvantages compared with these other systems. It tends to be associated with greater clarity and acceptability since it involves collection of revenues ear marked for LTC and, at least in principle, a link between contributions and benefits on the basis of clear eligibility criteria.
    Keywords: International Long-term Care Policy Network (ILPN) - LSE; Springer deal
    JEL: J1
    Date: 2022–06–01
  9. By: Hélène Benghalem (UNIL - Université de Lausanne); Pierre Cahuc (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, CEPR - Center for Economic Policy Research - CEPR); Pierre Villedieu (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We ran a large randomized controlled experiment among about 150,000 recipients of unemployment benefits insurance in France in order to evaluate the impact of part-time unemployment benefits. We took advantage of the lack of knowledge of job seekers regarding this program and sent emails presenting the program. The information provision had a significant positive impact on the propensity to work while on claim, but reduced the unemployment exit rate, showing important lock-in effects into unemployment associated with part-time unemployment benefits. The importance of these lock-in effects implies that increasing the marginal tax rate on earnings from work while on claim in the neighborhood of its current level would not decrease labor supply and would decrease the expenditure net of taxes of the unemployment insurance agency.
    Keywords: Unemployment insurance,Part-time unemployment benefits,Lock-in effects,Unemployment duration
    Date: 2021–05–01
  10. By: Laurence Barry; Arthur Charpentier
    Abstract: Since the beginning of their history, insurers have been known to use data to classify and price risks. As such, they were confronted early on with the problem of fairness and discrimination associated with data. This issue is becoming increasingly important with access to more granular and behavioural data, and is evolving to reflect current technologies and societal concerns. By looking into earlier debates on discrimination, we show that some algorithmic biases are a renewed version of older ones, while others show a reversal of the previous order. Paradoxically, while the insurance practice has not deeply changed nor are most of these biases new, the machine learning era still deeply shakes the conception of insurance fairness.
    Date: 2022–05
  11. By: International Association of Deposit Insurers
    Abstract: This paper is mainly based on case studies collected between March and June 2019 from Resolution Issues for Financial Cooperatives Technical Committee members and non-members. Since then, some respondents may have had changes in their early intervention and resolution framework. Therefore, although some of the examples given in this paper may now no longer apply, they are useful references to how these issues have been approached in the past.
    Keywords: deposit insurance, bank resolution
    JEL: G21 G33
    Date: 2021–12
  12. By: International Monetary Fund
    Abstract: The first mission of the Colombia FSAP was conducted virtually during June 1–21, 2021. This technical note focuses on the developments in the crisis management framework for the banking sector. The assessment examines the Colombian financial safety net and crisis management arrangements in light of the international best practices and standards on resolution and deposit insurance standards.
    Keywords: IMF-World Bank Financial Sector Assessment Program; virtual mission; Superintendencia Financiera de Colombia; D. Resolution tool; coordination mechanism; Grupo de crisis Financiera; Bank resolution framework; Bridge bank; Crisis management; Bank resolution; Central America; Global
    Date: 2022–06–03
  13. By: Andrea Salvatori
    Abstract: This paper provides new evidence on the effect of the 2012 reform on flows from UB to employment. The reform increased the steepness of the time profile of unemployment benefits by raising the initial benefit, lowering its long-term level and increasing the number of steps in-between. The analysis finds no indication that the 2012 reform of the Belgian UB system led to an increase in flows towards employment or inactivity either in the aggregate or when comparing groups of workers whose benefits were affected to different extents. While the results of this paper and recent literature provide little ground in favour of a further accentuation of the steepness of the time profile of UB in Belgium, the system could likely benefit from a simplification of the rules that would enhance its readability for workers and facilitate its administration and evaluation.
    Keywords: Unemployment, Unemployment benefits, Unemployment insurance
    JEL: J08 J65 E24
    Date: 2022–06–28
  14. By: Edith Archambault (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: According to a very broad definition of the European Commission, mutual organizations/ societies "are voluntary groups of persons (natural or legal) whose purpose is primarily to meet the needs of their members rather than achieve a return on investment." This broad definition includes self-help groups, friendly societies, cooperatives, mutual insurance companies, mutual benefit societies, credit unions, building societies, savings and loans associations, microcredit, burial associations, Freemasons.. . (European Commission 2003). Hereafter, it is a more restricted definition that is used, relying on principles shared by most mutuals in Europe, the region where they are the most widespread. However, some international examples put European mutual societies in perspective. The core organizations examined here will be mutual insurance companies and mutual benefit societies. In that sense, mutual societies are insurance companies run by their members for protecting them against property, personal and social risks on a voluntary and noncompulsory basis. Mutual insurance companies deal with property and life risks while mutual benefit societies protect their members against social risks, mainly illness, disability, and old age.
    Date: 2021
  15. By: Jack Blundell; Stephen Machin; Maria Ventura
    Abstract: Almost a year into the Covid-19 crisis, it has become widely acknowledged that UK self-employment has been particularly hard hit. Here we continue our series investigating the experience of self-employed workers throughout the crisis. Surveying workers in early February 2021, we find that incomes among the self-employed in the third lockdown are still significantly below pre-crisis levels, and are broadly similar to those of the first lockdown. While government support has been a lifeline for some, we illustrate that important gaps in support remain.
    Keywords: Self-employment, Covid-19, Shocks, Labour Markets, SEISS, Self-isolation, Social Insurance
    Date: 2021–03–02
  16. By: Orazio Attanasio; Costas Meghir; Corina Mommaerts; Yu Zheng
    Abstract: We consider risk sharing in rural China during its rapid economic transformation from the late 1980s through the late 2000s. We document an erosion of consumption insurance against both household-level idiosyncratic and village-level aggregate income shocks, and show that this decline is related to observable economic changes: the shift from agriculture to wage employment, the decline of publicly owned Township-and-Village Enterprises, and increased migrant work. Further evidence suggests that as these changes took place at the village level, higher levels of government failed to offset these effects through the tax-and-transfer system, leaving households more exposed to both idiosyncratic and village-aggregate risk.
    JEL: D12 E21 O12 P25
    Date: 2022–06
  17. By: Chongrui Zhu
    Abstract: The core of the research is to provide the explicit expression for the expected net present values (NPVs) of the double barrier strategy for regular diffusions. Under the so-called bail-out setting, the value of the expected NPVs of an insurance company varies according to the choice of a pair of policies, which consist of dividend payments paid out and capital injections received. In the case of the double barrier strategy, the closed-form expected NPVs are given via the bivariate $q$-scale function. This is accomplished by making use of a perturbation technique, which could lead to the linear equation system. The expression obtained here shall be conducive to addressing the associated dividends control problems.
    Date: 2022–06
  18. By: Martin Weale; Andrew Aitken
    Abstract: This paper explores how far it is possible to provide a theoretical framework for the Household Costs Indices. Four features are identified which distinguish the index from conventional consumer price indices: i) the index is calculated giving equal weight to each household's expenditure pattern (democratic weights); ii) insurance premia are treated gross rather net of claims; iii) interest payments are included as a cost and iv) goods and services are accounted for when they are paid for rather than when they are consumed. Points i) and ii) are strongly supported. It is suggested that for theoretical coherence iii) needs to be expanded to include interest receipts as well as payments. Point iv) raises a number of questions. A coherent framework representing the life-time cost of consumption correctly would need to include payments made ahead of future consumption (saving) as well as payments made ex post (repayment of debt). At present the only expenditure item subject to the principles of iv) is higher education; the student loan scheme has many of the characteristics of a tax and the treatment in the household cost indices can be defended on those grounds. ONS intends to produce a variant of the index which reflects the capital costs of housing and some thoughts are offered on measurement of these.
    Keywords: cash flow, cost of living index, household weights, insurance and net premia, interest charges
    JEL: C43 D11
    Date: 2021–12
  19. By: Chris Fleming; Eunhae Shin; Rhea Powell; Dmitriy Poznyak; Arvin Javadi; Claire Burkhart; Arkadipta Ghosh; Eugene Rich
    Abstract: In this paper, the authors describe how we updated the Original low-value services (LVS) measure set to reflect ICD-10 diagnosis codes and identified three LVS examples that show declining informativeness for current beneficiaries.
    Keywords: Original low-value services, Medicare, Fee-for-Service, Beneficiaries, CPC+
  20. By: Bert Van Roosebeke (International Association of Deposit Insurers); Ryan Defina (International Association of Deposit Insurers)
    Abstract: Using IADI Annual Survey data, we find some evidence that deposit insurers with particularly high deposit inflow during the pandemic tend to see their relative fund size decrease. As this refers to annual data, lags in premium collection are unlikely to explain this in full. At a quarterly level, and using weighted average relative fund sizes, we find that – globally – fund sizes have expanded throughout the pandemic, interrupted by a small decrease during 2021Q1 only. Given the overall growth of deposits during the pandemic, this is noteworthy. Over the 12-month period 2020Q2-2021Q2, we find an accumulated relative fund size increase of 2.6%. Europe and Asia witness high growth of about 10%, whereas the Americas see fund size decrease by 2%. Interpretation of quarterly data suggest that relative fund sizes in advanced economies have grown proportionately slower than in emerging economies. Whether this can be attributed to a larger and more sudden inflow in covered deposits in the economies (as annual data suggests) and/or to accommodative policies, remains to be investigated. Looking at future trends in deposits, 40% of survey respondents expect covered deposits to grow at approximately the same rate same as in the last five years. Of the 60% expecting an adjustment in growth into 2022, roughly half expected growth to exceed average historical levels.
    Keywords: deposit insurance, bank resolution
    JEL: G21 G33
    Date: 2022–06
  21. By: International Monetary Fund
    Abstract: The International Monetary Fund (IMF) is increasingly involved in offering policy advice on public pension issues to member countries. Public pension spending is important from both fiscal and welfare perspectives. Pension policy and its reforms can have significant fiscal and distribution implications, can influence labor supply and labor demand decisions, and may impact consumption and savings behavior. This technical note provides guidance on assessing public pension systems’ macrocriticality, i.e., sustainability, adequacy, and efficiency; it also discusses the issues and policy trade-offs to be considered when designing responses aiming to address these dimensions of the pension system. The paper emphasizes the importance of taking a long-term, comprehensive perspective when evaluating public pension spending and providing policy advice. Where feasible, reforms should be gradual and transparent to allow individuals ample time to adjust their work and savings decisions and to facilitate consumption smoothing over their lifecycle to avoid poverty in old age. It is also important to ensure that pension systems’ design and reforms do not lead to undesirable impacts in other policy areas including general tax compliance, health insurance coverage, labor force participation among older workers, or labor market informality. The paper emphasizes the importance country-specific social and economic objectives and constraints, as well as political economy realities – factors that can determine whether a pension reform is a success or failure.
    Keywords: Fiscal Policy; Social Protection; Pensions; Fiscal Sustainability; Defined Benefit; Defined Contribution; pension policy; policy engagement; Policy advice; General consideration; pension provision; C. IMF-supported program; Pension spending; Pension reform; Aging; Europe; Africa; Global; Southeast Asia; Eastern Europe
    Date: 2022–06–15
  22. By: Nina Boyarchenko; Richard K. Crump; Anna Kovner; Or Shachar
    Abstract: Corporate bonds are a key source of funding for U.S. non-financial corporations and a key investment security for insurance companies, pension funds, and mutual funds. Distress in the corporate bond market can thus both impair access to credit for corporate borrowers and reduce investment opportunities for key financial sub-sectors. In a February 2021 Liberty Street Economics post, we introduced a unified measure of corporate bond market distress, the Corporate Bond Market Distress Index (CMDI), then followed up in early June 2022 with a look at how corporate bond market functioning evolved over 2022 in the wake of the Russian invasion of Ukraine and the tightening of U.S. monetary policy. Today we are launching the CMDI as a regularly produced data series, with new readings to be published each month. In this post, we describe what constitutes corporate bond market distress, motivate the construction of the CMDI, and argue that secondary market measures alone are insufficient to capture market functioning.
    Keywords: corporate bond market distress; preponderance of metrics
    JEL: E58 G12 C58
    Date: 2022–06–29
  23. By: Cristina Belles; Sergi Jiménez; Han Ye
    Abstract: This paper sheds new light on the mortality effect of delaying retirement by investigating the Spanish 1967 pension reform that exogenously changed the early retirement age depending on the date individuals started contributing to the social security system. Those that contributed before January 1st, 1967, maintained the right to voluntarily retire early at age 60, while individuals who started contributing after could not voluntarily claim pension until age 65. Using the Spanish administrative social security data, we find that the reform delayed labor market exit by around half a year and increased the probability that individuals take up disability pensions, partial pensions, and no pensions. We show evidence that delaying existing employment increases the harzard of dying between ages 60 and 69. Heterogeneous analysis indicates that the negative impact is driven by those employed in low-skill, physically and psychosocially demanding jobs. Moreover, we show that allowing for flexible retirement schemes, such as partial retirement, mitigates the negative effect of delaying retirement on mortality.
    Date: 2022–06

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