Systemic Weather Risk and Crop Insurance: The Case of China

This article explores the possibility of spatial diversification of weather risk for 17 agricultural production regions in China. We investigate the relation between the size of the buffer load and the size of the trading area of a hypothetical temperature‐based insurance. The analysis adopts the hierarchical Archimedean copula approach that allows for flexible modeling of the dependence structure of insured losses. We find that the spatial diversification effect depends on the type of the weather index and the strike level of the insurance. Our findings are relevant for the current discussion on the viability of private crop insurance in China.     

日照时间天气指数保险的费率厘定——以长沙县早稻作物为例

天气指数保险是传统农业保险、区域产量保险的创新。选择天气指数保险探讨其费率厘定,有助于克服道德风险和逆选择,确保农业保险快速、健康地发展。粮食作物日照时间天气指数保险的费率厘定,首先要测算日照过短(或日照过长)的严重程度,计算日照过短(或日照过长)测度指标;再分析气候因素导致粮食作物减产的程度,计算气候减产率;然后利用计量经济分析方法,确立气候减产率与日照过短(或日照过长)测度指标之间的定量关系;最后根据该定量关系以及日照过短(或日照过长)测度指标的期望值,求得日照时间天气指数保险的费率。     

On the Possibility of a Private Crop Insurance Market: A Spatial Statistics Approach

Risk theory tells us if an insurer can effectively pool a large number of individuals to reduce total risk, the insurer can then provide insurance by charging a premium close to the actuarially fair rate. However, a common belief exists that risk can be effectively pooled only when random loss is independent. Therefore crop insurance markets cannot survive without government subsidy because crop yields are not independent among growers. In this article, we take a spatial statistics approach to examine the effectiveness of risk pooling for crop insurance under correlation. We develop a method for evaluating the effectiveness of risk pooling under correlation and apply the method to three major crops in the United States: wheat, soybeans, and corn. The empirical study shows that yields for the three crops present zero or negative correlation when two counties are far apart, which complies with a weaker condition than independence, finite‐range positive dependency. The results show that effective risk pooling is possible and reveal a high possibility of a private crop insurance market in the United States.     

Stochastic Dominance and Conditional Expectation—An Insurance Theoretical Approach

We show that the relation of second order stochastic dominance, which has found widespread use in models of economic behavior under uncertainty, may be described in terms of conditional expectation. If a distribution G second order stochastically dominates another distribution F, then there are random variables g and f with distributions G and F, respectively, such that g can be obtained from f by iterated conditional expectation. In terms of insurance, this shows that the less risky distribution can be obtained by a sequence of insurance contracts each one insuring against the residual risk left over from the previous contracts.     

大数据背景下的农险反欺诈检测:国际经验与技术选择

中国农业保险市场中欺诈骗保等违法行为不容忽视,亟需运用数据挖掘技术提高农业保险发展质量。首先,本文对反欺诈检测的常用方法进行了梳理,包括异常值检测、聚类法、线性回归法、社会关系网络分析法等方法。其次,本文总结美国运用数据挖掘技术开展农业保险反欺诈检测的基本经验。美国利用以政府主导、研究机构参与的模式,开发出多种欺诈检测项目,为美国农业保险节约巨额资金。再者,基于国际经验,本文提出适用于中国农业保险反欺诈检测的相关性异常值检测法、合谋关系检测法和机器学习法。最后,为进一步推动数据挖掘技术在中国农业保险反欺诈检测中的运用,本文提出建立农业保险大数据库、建立数据挖掘合作平台、建立常态化的数据利用机制、以及培育和激励数据挖掘人才等建议。     

The Conditional Distribution of Real Estate Returns: Are Higher Moments Time Varying?

Previous research has shown that the returns on individual properties and listed property securities are skewed. This claim is investigated in the context of listed U.K. property companies and U.S. REITs. In particular, the shape of the conditional distribution of total monthly returns is examined for a group of 20 U.K. companies and 20 REITs. Also investigated is the claim that the skewness found in property returns varies over time. Using the model of Hansen (1994), it is found that while a large portion of property security returns in the sample do exhibit skewness in the conditional distribution only in a few instances is there time variation in the skewness parameter. There is little evidence to suggest that skewness is associated with the economic cycle.     

Estimating Portfolio and Consumption Choice: A Conditional Euler Equations Approach

This paper develops a nonparametric approach to examine how portfolio and consumption choice depends on variables that forecast time-varying investment opportunities. I estimate single-period and multiperiod portfolio and consumption rules of an investor with constant relative risk aversion and a one-month to 20-year horizon. The investor allocates wealth to the NYSE index and a 30-day Treasury bill. I find that the portfolio choice varies significantly with the dividend yield, default premium, term premium, and lagged excess return. Furthermore, the optimal decisions depend on the investor's horizon and rebalancing frequency.     

Price Regulation in Property-Liability Insurance: A Contingent-Claims Approach

A discrete-time option-pricing model is used to derive the “fair” rate of return for the property-liability insurance firm. The rationale for the use of this model is that the financial claims of shareholders, policyholders, and tax authorities can be modeled as European options written on the income generated by the insurer's asset portfolio. This portfolio consists mostly of traded financial assets and is therefore relatively easy to value. By setting the value of the shareholders' option equal to the initial surplus, an implicit solution for the fair insurance price may be derived. Unlike previous insurance regulatory models, this approach addresses the ruin probability of the insurer, as well as nonlinear tax effects.     

Equity Issuance and Adverse Selection: A Direct Test Using Conditional Stock Offers

We conduct a unique test of adverse selection in the equity issuance process. While common stock is the dominant means of payment in bank mergers, stock acquisition agreements provide target shareholders with varying degrees of protection against adverse price movements in the bidder's stock between the time of the merger agreement and the time of merger completion. We show that it is the degree of protection against adverse price changes and not the percent of stock offered in a bank merger that explains bidder merger announcement abnormal returns. This result is difficult to explain outside of an adverse selection framework.     

Analysis of Participating Life Insurance Contracts: A Unification Approach

Fair pricing of embedded options in life insurance contracts is usually conducted by using risk‐neutral valuation. This pricing framework assumes a perfect hedging strategy, which insurance companies can hardly pursue in practice. In this article, we extend the risk‐neutral valuation concept with a risk measurement approach. We accomplish this by first calibrating contract parameters that lead to the same market value using risk‐neutral valuation. We then measure the resulting risk assuming that insurers do not follow perfect hedging strategies. As the relevant risk measure, we use lower partial moments, comparing shortfall probability, expected shortfall, and downside variance. We show that even when contracts have the same market value, the insurance company's risk can vary widely, a finding that allows us to identify key risk drivers for participating life insurance contracts.     

The Design of Optimal Insurance Contracts: A Topological Approach

This article deals with the optimal design of insurance contracts when the insurer faces administrative costs. If the literature provides many analyses of risk sharing with such costs, it is often assumed that these costs are linear. Furthermore, mathematical tools or initial conditions differ from one paper to another. We propose here a unified framework in which the problem is presented and solved as an infinite dimensional optimization program on a functional vector space equipped with an original norm. This general approach leads to the optimality of contracts lying on the frontier of the indemnity functions set. This frontier includes, in particular, contracts with a deductible, with total insurance and the null vector. Hence, we unify the existing results and point out some extensions.     

Pooling and Separating Equilibria in Insurance Markets with Adverse Selection and Distribution Costs

In the Rothschild-Stiglitz [1976] model of a competitive insurance market with adverse selection, pooling equilibria cannot exist. However in practice, pooling contracts are frequent, notably in health insurance and life insurance. This is due to the fact that distribution costs are nonnegligible and increase rapidly when more contracts are offered. We modify accordingly the Rothschild-Stiglitz model by introducing such distribution costs. We find that, however small these costs may be, they entail possible existence of pooling equilibria. Moreover, in these pooling equilibria, it is the high-risk individuals who are rationed, in the sense that they would be willing to buy more insurance at the current premium/insurance ratio.     

Non-Linearity Between Life Insurance and Economic Development: A Revisited Approach

This paper investigates the non-linear link between economic development and activities of the life insurance market. We ask whether the relevance of institutional environments on the development of the life insurance market is different across countries. Applying a novel threshold model with the instrumental variable approach, we find overwhelming evidence in support of an income threshold. Moreover, legal and political circumstances have an overwhelming positive effect on life insurance in low-income countries, but the effect is marginal in high-income countries. Our findings clearly demonstrate that the role of institutions on activities in the life insurance market diminishes with the evolvement of economic development.     

On Evaluation of the Conditional Distribution of the Deficit at the Time of Ruin

Analytic evaluation of the deficit at the time of ruin is shown to be simplified when the residual equilibrium density function associated with the claim size distribution has a certain property. This result is used to show that the conditional distribution of the deficit is a mixture of Erlangs (gamma with integer shape parameters) if the same is true of the claim size distribution. This unifies and generalizes previous results involving combinations of exponentials and a particular Erlang distribution. Extensions are then discussed.     

Overcoming Barriers to Life Insurance Coverage: A Behavioral Approach

While life insurance purchase decisions have long been studied, we still do not know how people decide if they need insurance or how much they need. Using in‐depth interviews, we peer into the black box of employee decision making to learn what people know about this employee benefit, and how they decide if it is of value for them. We find that individuals understand the need for life insurance, but find many behavioral economic barriers to getting adequate coverage, including mental accounting, money illusion, and a strong role of defaults. We then conduct an online experiment of the hypothetical employee‐benefit purchase scenario, and find a few, simple interventions could help individuals better decide their life insurance needs.     

Modeling the Conditional Covariance Between Stock and Bond Returns: A Multivariate GARCH Approach

To analyze the intertemporal interaction between the stock andbond market returns, we assume that the conditional covariancematrix follows a multivariate GARCH process. We allow for asymmetriceffects in conditional variances and covariances. Using dailydata, we find strong evidence of conditional heteroskedasticityin the covariance between stock and bond market returns. Theresults indicate that not only variances, but also covariancesrespond asymmetrically to return shocks. Bad news in the stockand bond market is typically followed by a higher conditionalcovariance than good news. Cross asymmetries, that is, asymmetriesfollowed from shocks of opposite signs, appear to be importantas well. Covariances between stock and bond returns tend tobe relatively low after bad news in the stock market and goodnews in the bond market. A financial application of our modelshows that optimal portfolio shares can be substantially affectedby asymmetries in covariances. Moreover, our results show sizablegains due to asymmetric volatility timing.     

Dynamic Portfolio Selection: the Relevance of Switching Regimes and Investment Horizon

This paper investigates the questions of dynamic portfolio selection and intertemporal hedging within a Markovian regime‐switching framework. The investment opportunity set is spanned by a well‐diversified home‐market portfolio and the risk‐free asset. Our results highlight the economic importance of regimes, as optimal portfolio weights are clearly dependent on the prevailing regime. We present evidence that the question of intertemporal hedging is a more complex issue than is hinted in the previous literature, since demand for intertemporal hedging is present in some regimes, but not in others. Finally, our main findings are qualitatively unchanged across the four largest stock markets in the world.     

A Multi-Line Insurance Fraud Recognition System: A Government-Led Approach in Korea

This article introduces a government-led insurance fraud detection program in Korea. The Insurance Fraud Recognition System (IFRS) uses policy and claims data from multi-lines of insurance (life, automobile, and fire), employs a three-stage statistical and link analysis to identify presumably fraudulent claims by claimant or by group, and generates system reports that the government regulator draws on to make decisions. The authors evaluate the system based on the fraud statistics and IFRS results for 2004, and offer recommendations for system improvement. This article examines existing studies about fraud, industry experiments using advanced technology, and government assistance to the insurance industry's fight against fraud in selected countries. It also provides a brief overview of the Korean insurance market, especially after the recent Asian economic crisis.     

寿险公司业务的保障属性对经营绩效的影响

目前,寿险业面临着深化改革的难题,不少寿险公司的发展也遇到了困难,在此背景下,一些偏离"保险姓保"政策导向的寿险公司的经营绩效表现不佳,且抗风险能力堪忧.回归"保障"能否改善寿险公司的经营绩效,进而增强寿险业整体的抗风险能力,成为当下亟待研究的问题.本文聚焦寿险公司业务保障属性强弱对其经营绩效的影响,采用"保险风险占比"指标来度量寿险公司业务的保障属性强弱,综合构建寿险公司绩效评价方式,选取61家寿险公司作为样本,组成非平衡面板数据,采用固定效用模型、多项Logit模型进行实证分析,并采用更换模型法和子样本回归法对实证结果进行稳健性检验.研究发现,寿险公司业务的保障属性强会对其经营绩效产生显著正向影响.具体而言,寿险公司业务保障属性越强,其盈利能力越强,同时其经营稳健性越好,具体表现为该公司的投资风险、退保风险、偿付风险和流动性风险越低.基于此,本文提出相关的监管政策建议和寿险公司经营战略建议.     

农作物保险对产出的影响:理论框架,研究现状与展望

农作物保险是保障国家粮食安全的重要政策工具。学术研究领域对农作物保险影响作物产出的相关探讨由来已久,在不少问题上存有争论,而关于这一主题,近年来的总结性研究并不多见。本文基于1980年至2019年国内外相关文献检索的结果,提炼出农作物保险作用于产出的基本理论框架,提出保险通过“长期机制”和“短期机制”的共同作用对农作物产出带来影响。据此框架,论文从农作物保险对生产行为、对农业生产者收益和对产量三个方面对国内外研究做了系统的梳理,并总结了实证研究的方法,最后立足国内对今后这一主题的研究进行了展望。