Incentive Effects of Community Rating in Insurance Markets: Evidence from Massachusetts Automobile Insurance

Rate regulations in insurance markets often impose cross-subsidies in insurance premiums from low-risk consumers to high-risk consumers. This paper develops the hypothesis that premium cross-subsidies affect risk taking by insurance consumers, and tests this hypothesis by examining the marginal impact of premium subsidies and overcharges on future insurance costs. The empirical analysis uses 1990–2003 rating cell-level data from the Massachusetts automobile insurance market, in which regulation produced large cross-subsidies across cells. Consistent with the hypothesized effects, premium subsidies are found to be significantly related to higher future insurance costs, and the opposite effects are found for premium overcharges.     

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.     

An Option-Pricing Approach to the Costs of Export Credit Insurance

This article investigates the relationship between a debtor country's external financial indicators and the costs associated with the insurance of export credits to that country. For this purpose a stylized model of export credit insurance (ECI) is developed, the central idea being that ECI is similar to a contingent claim such as a European put option. Thus, tools from option pricing theory were used to calculate the price of ECI, implying that not only the current financial position but also the volatility of the changes in that position determine such costs. The empirical results of a statistical analysis of the premium rates for ECI, applied by a private export credit insurer to seventy-seven developing countries during 1993, provide some support for these hypotheses. In particular, the reserves-over-imports ratio of a debtor country and the volatility of the rates of change of this ratio appear to contribute significantly to the premium rates that apply to that country. Thus, the article provides evidence that option pricing parameters do play role in practical insurance pricing, even if this pricing is not explicitly based on these parameters. Premium rates are set as if an underlying option market operated. Thus, the trade of countries with volatile external financial positions is saddled with higher costs than that of countries with more stable positions.     

Corporate Insurance and Debt: The Case of China*

Finance theorists have long argued that corporate purchases of property insurance can reduce the probability and hence the expected costs of financial distress. And by so doing, the corporate use of insurance can reduce borrowing costs and/ or increase debt capacity, reduce the overall cost of capital, and increase firm value. This article attempts to apply this argument to the case of publicly traded companies in China, which provides a particularly interesting environment given the significant presence of both foreign direct investment and state shareholdings in its corporate sector. From their study of several hundred Chinese companies during the period 1997‐2003, the authors report the following conclusions: Companies with higher borrower costs tend to purchase more property insurance, which in turn has the effect of increasing their debt capacity. Smaller companies are more likely than larger firms both to insure their assets and to purchase more property insurance (as a percentage of assets), reflecting their greater vulnerability to financial shocks and larger potential benefit from insurers' real advisory services (such as loss prevention advice). Companies with more and larger growth opportunities are more likely to purchase insurance, reflecting their higher expected costs of financial distress (from possible underinvestment) than firms with limited growth opportunities. Companies with higher levels of state ownership tend to insure their assets to a greater extent, suggesting that the managers of such companies insure to protect their job security, particularly as the availability of state subsidies to the Chinese corporate sector has declined since market reforms were initiated in 1978.     

韩国存款保险制度概况及其启示

随着我国利率市场化进程的推进,银行类金融机构间的竞争日趋激烈,适时建立存款保险制度势在必行。该文通过对韩国存款保险公司的保险对象、保险限额、费率、保险基金构成、主要业务、韩国存款保险公司的监管职能及其在应对危机时所采取的措施进行研究和探讨,为我国存款保险制度的建立提供参考。     

失业保险与公司财务杠杆

我国劳动力市场化程度日益加深导致劳动者职业转换愈加频繁,失业保险的作用日益突出。本文探究了失业保险金水平对企业财务杠杆的影响。运用2009—2019年上市公司数据进行实证分析,结果发现失业保险金上升会导致公司财务杠杆下降。渠道检验显示,提高失业保险金可以降低员工失业风险溢酬,公司劳动力成本下降,公司有更多自由现金流和盈利进行内源融资和偿还债务,公司财务杠杆下降。进一步分析发现,失业保险金的作用在失业率高的地区更加显著。主要结果在分别运用《社会保险法》和《关于调整失业保险金标准的指导意见》构造双重差分模型和工具变量解决内生性问题、更改模型设置、排除投资水平影响、删除特殊省份、更换样本期间后,依然成立。本文结果说明加大失业保险保障力度有助于降低企业财务风险。     

Capital Structure, Agency Problems, and Deposit Insurance in Banking Firms

This paper applies and synthesizes various theories of corporate finance, including capital structure, agency insurance, and regulation, to the case of banking firms and the deposite insurance system. It is argued that a value-maximizing bank would reach its optimal capital structure by minimizing the agency costs of incentive conflicts among stockholders, managers, uninsured depositors, and the deposit insurance agency. Although a regulatory imposed capital requirment may reduce the agency costs inherent in the insurance contact, it cannot produce a universal capital structure that is optimal for all insured banks. The observed capital structure patterns also suggest that banks actively seek an optimal capital structure.     

车险费率市场化及国内财险公司的应对策略

＂十二五＂时期车险费率市场化改革可能在全国范围内推行,这将会对整个车险市场产生深远影响。国内财险公司应积极把握车险费率市场化政策机遇,采取创新产品服务、拓宽销售渠道、控制费用以及互利合作等策略,避免单纯的价格竞争,促进我国车险市场的健康有序发展。     

Strategic Demand for Insurance

We focus on the corporate demand for insurance under duopoly. We consider the case in which firms purchase insurance in order to enhance their competitiveness. We show that a higher level of corporate insurance makes a firm more aggressive and its competitor less aggressive in the output market (strategic effect). The optimal coverage of insurance is determined by comparing the strategic effect of insurance and the cost of insurance. The optimal coverage is positive if the strategic effect is greater than the cost of insurance. An interesting implication is that a risk‐neutral firm may purchase actuarially unfair insurance. The main strategic effect of insurance comes from the fact that firms purchase insurance before they produce outputs. Insurance makes firms more aggressive due to the limited risk costs of firms.     

Homeowners Insurance With Bundled Catastrophe Coverage

We estimate the demand for homeowners insurance in Florida and New York with indicated loss costs as our proxy for the quantity of real insurance services demanded. We decompose the demand into the demand for coverage of catastrophe perils and the demand for noncatastrophe coverage and estimate these demand functions separately. Our results are relatively consistent in New York and Florida, including evidence that catastrophe demand is more price elastic than noncatastrophe demand. We also find evidence that consumers value options that expand coverage, buy more insurance when it is subsidized through regulatory price constraints, and consider state guaranty fund provisions when purchasing insurance.     

Firm Size and Growth in the United Kingdom Life Insurance Industry

This study tests whether the organic growth rates of United Kingdom (UK) life insurance firms are independent of size, as predicted by Gibrat's (1931) Law of Proportionate Effects. Using data for 1987–1996 and the three subperiods, 1987–1990, 1990–1993, and 1993–1996, we find that smaller life insurance firms tended to grow faster than larger ones in the 1987–1990 period and that larger life insurers tended to grow faster than smaller ones in the 1990–1993 and 1993–1996 periods. But over the ten‐year period, we find no significant difference between the growth rates of small and large firms, thus supporting Gibrat's Law as a long‐run tendency in the UK life insurance industry. When we examine firm‐specific determinants of asset growth, we find evidence in 1987–1996 and 1987–1990 that more diversified life insurance firms experienced higher growth rates on average than more specialized life insurers. We also find that the growth of life insurance firms was related to input costs during the 1990–1993 and 1993–1996 subperiods.     

Prosecuting Insurance Fraud—A Case Study of the Massachusetts Experience in the 1990s

There is widespread agreement that insurance fraud is a major problem in the United States. There is little agreement, however, in what constitutes insurance fraud in the many articles and research papers published on the subject during the past ten years. The term ‘‘fraud’’ carries the connotation that the activity is illegal and, hence, that prosecution and conviction are potential outcomes of a specific fraud. Accepting that premise allows us to adopt the legal definition of fraud in the insurance context and to examine the experience of dealing with insurance fraud in terms of property‐liability insurance lines. Specifically, we examine ten years of data on referrals and disposals of incidents of suspected fraud as processed by the Insurance Fraud Bureau of Massachusetts to provide estimates of the distribution of types of people who perpetrate a variety of insurance frauds. We compile conviction rates, sentencing outcomes, and recidivism rates in detail to illuminate the law enforcement process and to gauge the deterrent effect of prosecuting insurance fraud in the criminal courts. The Massachusetts data lead us to conclude that the number of cases of convictable fraud is much smaller than the prevailing view of the extent of fraud; that the majority of guilty subjects have prior (noninsurance) criminal records; and that sentencing of subjects guilty of insurance fraud appears effective as both a general and specific deterrent for insurance fraud but ineffective as a specific deterrent for other crime types, as the recidivism rate appears no different from the general property criminal's recidivism rate.     

Arbitrage and Viability in Insurance Markets

Insurance markets are subject to transaction costs and constraints on portfolio holdings. Therefore, unlike the frictionless asset markets case, viability is not equivalent to absence of arbitrage possibilities. We use the concept of unbounded arbitrage to characterize viable prices on a complete and an incomplete insurance market. In the complete market, there is an insurance contract for every possible event. In the incomplete market, risk can be insured through proportional and excess of loss like insurance contracts. We show how the the structure of viable prices is affected by the portfolio constraints, the transaction costs, and the structure of marketed contracts.     

参保密度、市场竞争与农业保险公司的成本费用

基于2010-2019年全国各地区面板数据,运用门槛回归模型,考量不同市场竞争强度下参保密度对农业保险成本费用的影响。结果显示：参保密度对农业保险的成本费用具有显著影响,但是在市场竞争强度门槛变量下呈现出不同的影响方向,当市场竞争较弱时,参保密度对农业保险的成本费用具有显著负向影响;当市场竞争较强时,参保密度对农业保险的成本费用具有显著正向影响。因此,在参保密度提升的前提下,会使得地区的农业保险市场存在一个最优竞争强度。     

Depositors’ Response to Deposit Insurance Reforms: Evidence from Japan, 1990–2005

We empirically investigate depositors’ response to various bank risk measures under different deposit insurance regimes. We find that depositor discipline is most significant during periods of full insurance coverage rather than during limited insurance coverage, and that deposit withdrawal induces bank managers to carry out aggressive restructuring. Our evidence suggests that the magnitude of depositor discipline is affected by both the extent of insurance coverage, and by the degree of public confidence in the stability of the financial system and the extent of regulatory forbearance. There is little evidence that higher interest rates at riskier banks promote depositor discipline.     

Natural Disaster Insurance and the Equity-Efficiency Trade-Off

This article investigates the role of private insurance in the prevention and mitigation of natural disasters. We characterize the equity‐efficiency trade‐off faced by the policymakers under imperfect information about individual prevention costs. It is shown that a competitive insurance market with actuarial rate making and compensatory tax‐subsidy transfers is likely to dominate regulated uniform insurance pricing rules or state‐funded assistance schemes. The model illustrates how targeted tax cuts on insurance contracts can improve the incentives to prevention while compensating individuals with high prevention costs. The article highlights the complementarity between individual incentives through tax cuts and collective incentives through grants to the local jurisdictions where risk management plans are enforced.     

Insurance loss coverage and social welfare

Restrictions on insurance risk classification may induce adverse selection, which is usually perceived as a bad outcome, both for insurers and for society. However, a social benefit of modest adverse selection is that it can lead to an increase in ‘loss coverage’, defined as expected losses compensated by insurance for the whole population. We reconcile the concept of loss coverage to a utilitarian concept of social welfare commonly found in the economic literature on risk classification. For iso-elastic insurance demand, ranking risk classification schemes by (observable) loss coverage always give the same ordering as ranking by (unobservable) social welfare.     

Pricing Term Insurance in the Presence of a Family History of Breast or Ovarian Cancer

Abstract

We estimate the increased mortality and term life insurance costs for women who have a family history of breast or ovarian cancer. Using data from the medical literature on age-specific and family history-specific incidence rates, we develop double-decrement models to evaluate the actuarial impact of breast cancer and ovarian cancer in the family. We also calculate the increased mortality and term insurance costs for women who test positive for the BRCA1 or BRCA2 gene mutation. We find that the type of affected relative and her age at onset of the disease are key underwriting factors. We find substantial mortality increases (up to 100%) for women with two relatives with cancer and women with a first-degree relative who developed cancer at an early age. Mortality increases for women with the BRCA gene mutation reach 150%. While some females with a family history of cancer can be accepted at standard rates, others may need to be quoted substandard rates, depending on the underwriting policy of the company. Females with the gene mutation can possibly be accepted at a rate that incorporates a severe mortality surcharge.     

“三农”综合保险的可持续性研究--以福建龙岩“三农”综合保险为例

“三农”综合保险的可持续性分为政府支持可持续性、保险经营可持续性、农民投保可持续性和成功经验的可推广性。不可持续的原因主要有：缺乏法律保障，政府支持具有不确定性能；农村税源流失、财政收入增速赶不上保费补贴增速；集中招投标式的市场准入与自由竞争的大方向相背；“三农”风险的重要性相对降低，投保率下降。应通过立法将政府支持固定下来；培育税源，防灾防损，抑制保费补贴的增速；借鉴国际经验，规定在农村地区开业的保险必须经营部分险种；提高农业收入在农民收入来源中的比重，稳定投保率。