Insurance markets and unisex tariffs: is the European Court of Justice improving or destroying welfare?

We analyze the effects of mandatory unisex tariffs in insurance contracts, such as those required by a recent ruling of the European Court of Justice, on equilibrium insurance premia and equilibrium welfare. In a unified framework, we provide a quantitative analysis of the associated insurance market equilibria in both monopolistic and competitive insurance markets. We investigate the welfare loss caused by regulatory adverse selection and show that unisex tariffs may cause market distortions that significantly reduce overall social welfare.     

Insurance demand in the presence of loss-dependent background risk

We analyze insurance demand when insurable losses come with an uninsurable zero-mean background risk that increases in the loss size. If the individual is risk vulnerable, loss-dependent background risk triggers a precautionary insurance motive and increases optimal insurance demand. Prudence alone is sufficient for insurance demand to increase in two cases: the case of fair insurance and the case where the smallest possible loss exceeds a certain threshold value (referred to as the large loss case). We derive conditions under which insurance demand increases or decreases in initial wealth. In the large loss case, prudence determines whether changes in the background risk lead to more insurance demand. We generalize this result to arbitrary loss distributions and find conditions based on decreasing third-degree Ross risk aversion, Arrow–Pratt risk aversion, and Arrow–Pratt temperance.     

The Valuation of Insurance under Uncertainty: Does Information about Probability Matter?

In a laboratory experiment we test the hypothesis that consumers' valuation of insurance is sensitive to the amount of information available on the probability of a potential loss. In order to test this hypothesis we simulate a market in which we elicit individuals' willingness to pay to insure against a loss characterised either by known or else vague probabilities. We use two distinct treatments by providing subjects with different information over the vague probabilities of loss. In general we find that uncertainty about probabilities has a weak impact on consumers' valuation of insurance. However, additional information about probabilities tends to marginally increase the price individuals are willing to pay to insure themselves. Implications for the insurance market are derived.     

Explaining Insurance Policy Provisions via Adverse Selection

In this article, we show that common insurance policy provisions—namely, deductibles, coinsurance, and maximum limits–can arise as a result of adverse selection in a competitive insurance market. Research on adverse selection typically builds on the assumption that different risk types suffer the same size loss and differ only in their probability of loss. In this study, we allow the severity of the insurance loss to be random and, thus, generalize the results of Rothschild and Stiglitz [1976] and Wilson [1977]. We characterize the separating equilibrium contracts in a Rothschild-Stiglitz competitive market. By further assuming a Wilson competitive market, we show that an anticipatory equilibrium might be achieved by pooling, and we characterize the optimal pooling contract.     

Optimal insurance contract and coverage levels under loss aversion utility preference

This study develops an optimal insurance contract endogenously and determines the optimal coverage levels with respect to deductible insurance, upper-limit insurance, and proportional coinsurance, and, by assuming that the insured has an S-shaped loss aversion utility, the insured would retain the enormous losses entirely. The representative optimal insurance form is the truncated deductible insurance, where the insured retains all losses once losses exceed a critical level and adopts a particular deductible otherwise. Additionally, the effects of the optimal coverage levels are also examined with respect to benchmark wealth and loss aversion coefficient. Moreover, the efficiencies among various insurances are compared via numerical analysis by assuming that the loss obeys a uniform or log-normal distribution. In addition to optimal insurance, deductible insurance is the most efficient if the benchmark wealth is small and upper-limit insurance if large. In the case of a uniform distribution that has an upper bound, deductible insurance and optimal insurance coincide if benchmark wealth is small. Conversely, deductible insurance is never optimal for an unbounded loss such as a log-normal distribution.     

The Impact of Insurance Prices on Decision Making Biases: An Experimental Analysis

This article tests whether the use of endogenous risk categorization by insurers enables consumers to make better‐informed decisions even if they do not choose to purchase insurance. We do so by adding a simple insurance market to an experimental test of optimal (Bayesian) updating. In some sessions, no insurance is offered. In others, actuarially fair insurance prices are posted, and a subset of subjects is allowed to purchase this insurance. We find significant differences in the decision rules used depending on whether one observes insurance prices. Although the majority of choices correspond to Bayesian updating, the incidence of optimal decisions is higher in sessions with an insurance option. Most subjects given the option to purchase actuarially fair insurance choose to do so. However, fewer subjects purchase insurance when the probability of a loss is higher.     

Der Einfluss einer staatlichen Grundsicherung auf die Versicherungsnachfrage bei asymmetrischer Informationsverteilung

In this article, we develop a model framework in which the influence of a state assistance on insurance demand in an insurance market with imperfect information can be examined. It turned out that a state subsidy of very low level has no influence on the insurance demand at all. If the state assistance is adequately high, the individuals will prefer government assistance to market insurance. In case of adverse selection, a state assistance can have the consequence that the good risks decide not to buy any insurance while the bad risks purchase full insurance cover. The state assistance can therefore contribute to solve the problem of adverse selection. In case of moral hazard, a surprising result has been found out. The state assistance can bring the measures of loss minimizing to a standstill before the insurance can do it. The state subsidy amplifies the moral hazard behaviour and is therefore not a suitable instrument to solve problems with moral hazard.     

Health insurance and its impact on the survival rates of breast cancer patients in Synthea

The goal of this project was to build policy modules in a synthetic health system to analyze how healthcare policy impacts breast cancer survival rates. To do any inference regarding healthcare policy, researchers need secure and protected health data, which are restricted by privacy laws and interoperability issues. Synthetic health systems generate and help investigate health data without concerns of violating legal restrictions (HIPAA). In this research, we programmed health insurance and loss‐of‐care modules into a synthetic health system simulator (Synthea) to simulate and analyze the impact of health insurance on breast cancer survival rates. Our goal was for our health insurance and loss‐of‐care implementations to be realistic and reflective of the real world, in which we were successful.     

Regulator performance,regulatory environment and outcomes: An examination of insurance regulator career incentives on state insurance markets

In this paper we test whether the past or future labor market choices of insurance commissioners provide incentives for regulators in states with price regulation to either favor or oppose the industry by allowing prices that differ significantly from what would otherwise be the competitive market outcome. Using biographical data on insurance regulators, economic and state specific market structure and regulatory variables, and state premium and loss data on the personal automobile insurance market, we find no evidence consumers in prior approval states paid significantly different “unit prices” for insurance than consumers in states that allow competitive market forces to determine equilibrium prices during the time period 1985–2002. We do, however, find evidence regulators who obtained the position of insurance commissioner by popular election and those who seek higher elective office following their tenure as insurance commissioner allow higher overall “unit prices” relative to competitive market states. The “unit price” of insurance in regulated states is not statistically different from the competitive market outcome for regulators that make lateral moves back into state government and it is mildly higher for regulators who enter the insurance industry following their tenure. Finally, we find some evidence regulators who describe themselves as consumer advocates are successful reducing the price of insurance in favor of consumers in regulated markets. Overall the results are consistent with the existence of asymmetric information in the regulatory process that agents use to enhance their career aspirations.     

Rural Homeowners’ Willingness to Buy Flood Insurance

Houses are the primary asset for Chinese rural families. However, dramatically increasing frequency and severity of floods have caused significant loss in rural houses recently, and there is generally no insurance available. In this article, we investigate the rural residents’ willingness to buy insurance according to a national survey. The results show that there exists a strong need for flood insurance in rural China, and the influencing factors in the insurance demand include the recent frequency of floods, income, and past experience with lack of flood insurance. Policy suggestions for flood insurance are provided for the insurance industry and Chinese government.     

The cost of operational risk loss insurance

Using the Algo FIRST operational risk database, this paper computes the cost of operational risk loss insurance for a sample of banks over a 1-year horizon. The estimated cost of 1-year operational risk loss insurance for an average bank is 1.24% as a percentage of firm value on December 31, 2006, while an average AA bank is 0.24%. These estimates far exceed the typical 1-year default insurance premiums as reflected in market CDS rates for similarly rated banks. These insurance premiums confirm the economic importance of operational risk in the management of financial institutions.     

Modeling Frost Losses: Application to Pricing Frost Insurance

The main objective of this article is to model the losses caused by frost events and use it to price frost insurance. Since the data on frost events are either unavailable or rarely available, we have chosen to obtain a model for frost losses based on temperature by using some fundamental agricultural engineering findings on frost damage. The main challenges in modeling frost loss variables are, first, the nonlinearity of the frost losses with respect to the temperature and, second, the fruit resistance to the first few hours of low temperature. We address both issues when introducing our frost loss variable. Then after finding the loss model, we use it to price frost insurance for a general family of insurance contracts that do not generate any risk of moral hazard. In particular, we will find the premiums of stop-loss policies for losses to citrus fruits using Value at Risk, Conditional Value at Risk, and Wang's premium based on temperature data from San Joaquin Drainage in California.     

健康险赔付与医院收入长期联动效应分析——基于VAR和VEC模型的实证

近年来我国健康险发展较快,但其高赔付率成了进一步发展的"瓶颈",这主要源于医险市场中的道德风险。本文运用计量经济学方法,对保险赔付和医院收入的关系进行了实证分析。结论:医院医疗收入、门诊收入和住院收入是导致保险赔付上升的原因,健康险赔付对医院收入的影响作用不显著,健康险业务的健康发展离不开医方的紧密协作。建议:保险公司需重视与医院和医生的合作,突出合作重点、改革合作方式和革新合作内容。     

Risiken aus kommerzieller Nutzung des Internet — Möglichkeiten der Schadenverhütung und Versicherung

Due to the increasing importance of the Internet and its commercial use a new risk category has emerged, opening up interesting business opportunities for insurance companies. — Besides insurance, loss prevention measures must be considered key aspects in this context, particularly since without contract clauses regarding loss prevention and extensive assessment of an insured’s activities in this field, insurance may not be available in many cases. After a short classification and explanation of Internet risks, this paper firstly deals with loss prevention, concentrating on the technical measures such as cryptology or firewall concepts, which are specific for the risks in question. These measures allow for a significant increase in the security of data transfer and the security of individual networks’ connections to the Internet. A complete elimination of risk, however, is usually not an economically reasonable goal. The question, to what extent the remaining risk can be covered by insurance, is addressed in the following section of this paper, in which we analyze problems of insurability and how these problems could probably be solved through product design.     

The Impact of Rate Regulation on Claims: Evidence From Massachusetts Automobile Insurance

The article tests the hypothesis that insurance price subsidies created by rate regulation lead to higher insurance cost growth. The article makes use of data from the Massachusetts private passenger automobile insurance market, where cross‐subsidies were explicitly built into the rate structure through rules that limit rate differentials and differences in rate increases across driver rating categories. Two approaches are taken to study the potential loss cost reaction to the Massachusetts cross‐subsidies. The first approach compares Massachusetts with all other states while controlling for demographic, regulatory, and liability coverage levels. Loss cost levels that were about 29 percent above the expected level are found for Massachusetts during years 1978–1998, when premiums charged were those fixed by the state and included explicit subsidies for high‐risk drivers. A second approach considers changing cost levels across Massachusetts by studying loss cost changes by town and relating those changes to subsidy providers and subsidy receivers. Subsidy data based on accident year data for 1993–2004 show a significant and positive (relative) growth in loss costs and an increasing proportion of high‐risk drivers for towns that were subsidy receivers, in line with the theory of underlying incentives for adverse selection and moral hazard.     

Probability Updating and the Market for Directors’ and Officers’ Insurance

Over the past decade, much attention has been given to the topics of corporate governance and corporate risk management. One increasingly important insurance product associated with each of these issues is directors’ and officers’ (D&O) liability insurance. Given the interconnectedness that exists between D&O insurance, corporate risk management, and corporate governance, we exploit industry‐specific D&O data to explain how industries most associated with the corporate scandals of the early 2000s adjusted demand patterns during periods of certainty and uncertainty. The rich data set coupled with dramatic changes in the marketplace allows for the testing of insurance demand patterns and enables us to offer insight into the market's response to a unique type of loss shock. The results of this study suggest evidence in favor of demand‐side probability updating, whereby those industries most associated with the corporate scandals of the early 2000s adjusted the demand for D&O insurance during periods of greater uncertainty.     

基于损失分布的产险公司保险保障基金构成机制研究

保险保障基金制度是为了确保保单持有人利益和完善保险企业退出机制而建立的特殊制度。保险保障基金的筹集是保险保障基金制度的核心内容，它直接关系到保险保障基金制度的有效运行。本文以产险公司为例，通过拟合损失分布，从保单定价的盈亏平衡原理和产险公司实际偿付能力出发，给出了产险公司破产时，保险保障基金的期望损失计算公式，并提出相关参数的估计方法，对建立保险保障基金的风险缴纳比例机制有一定的借鉴意义。     

Zur Anwendung des Bühlmann / Straub-Verfahrens in der Außendienstentlohnung

The German insurance market is opened to a large part of insurance agents, who are payed proportionally to their turnover. This turnover orientation ignores that there may be differences in the risks loss distributions. Therefore a profit margin based compensation system should be preferable but implies the problem that the profit margin is a random variable. In this paper we use the credibility theory and the Buehlmann / Straub method to generate a profit margin based compensation system which balances the insurers and the insurance agents demands. The effects of this system are examined in the context of a simulation study.     

Precautionary Insurance Demand With State-Dependent Background Risk

This article considers a zero‐mean background risk that is uncorrelated with insurable losses, but is not necessarily statistically independent. In particular, the size of the background risk can vary in different insurable‐loss states. We show how a prudent individual will buy either more insurance or less insurance than with no background risk, depending on the relative size of the background risk in the loss states vis‐á‐vis the no‐loss states. If we consider two individuals, with one more risk averse than the other, we need to compare the intensities of their precautionary motives, in addition to their measures of risk aversion, before we can determine who buys more insurance coverage in the presence of the state dependent background risk.     

Leibniz’ versicherungswissenschaftliche Schriften aus ökonomischer Sicht

Leibniz filed his general ideas and understanding of insurance mainly in his essay ?Öffentliche Assekuranzen“ (Public Assurances). His proposals are not entirely new — he refers to the exemplary model of the Hamburger Feuerkasse, as well as the private assurers at the seaports — yet at the same time they are far ahead of his time. Viewed in an economic light, many of his thoughts are surprisingly modern in today’s environment; those reflected and commented upon in this paper include: the economic role and importance of insurance, its relation towards loss prevention and reduction, the appropriate legal organisation and the psychological excess yield of insurance.