The genetics of breast and ovarian cancer V: application to income protection insurance

In Part IV we presented a comprehensive model of a life history of a woman at risk of breast cancer (BC), in which relevant events such as diagnosis, treatment, recovery and recurrence were represented explicitly, and corresponding transition intensities were estimated. In this part, we study some applications to income protection insurance (IPI) business. We calculate premiums based either on genetic test results or more practically on a family history of BC. We then extend the model into an IPI market model by incorporating rates of insurance-buying behaviour, in order to estimate the possible costs of adverse selection, in terms of increased premiums, under various moratoria on the use of genetic information.     

Huntington's disease,critical illness insurance and life insurance

We describe briefly a model of Huntington's disease (HD), a highly penetrant, dominantly inherited, fatal neurological disorder. Although it is a single-gene disorder, mutations are variable in their effects, depending on the number of times that the CAG trinucleotide is repeated in a certain region of the HD gene. The model covers: (a) rates of onset, depending on CAG repeat length as well as age; (b) post-onset rates of mortality; and (c) the distribution of CAG repeat lengths in the population. Using these, we study the critical illness and life insurance markets. We calculate premiums based on genetic test results that disclose the CAG repeat length, or more simply on a family history of HD. These vary widely with age and policy term; some are exceptionally high, but in a large number of cases cover could be offered within normal underwriting limits. We then consider the possible costs of adverse selection, in terms of increased premiums, under various possible moratoria on the use of genetic information, including family history. These are uniformly very small, because of the rarity of HD, but do show that the costs would be much larger in relative terms if family history could not be used in underwriting. We point out some difficulties involved in applying a moratorium that recognises simply a dichotomy between ‘carriers’ and ‘non-carriers’ of any mutation in a gene when these mutations are, in fact, very variable in their effects. These complexities suggest that restrictions on the disclosure, rather than on the use, of genetic information, if it became established as a principle, could deprive insurers of information needed for risk management even if not used in underwriting.     

Welfare Effects of Banning Genetic Information in the Life Insurance Market: The Case of BRCA1/2 Genes

We investigate whether regulations that ban insurance companies from access to individuals' genetic tests are likely to lead to substantial adverse selection costs for the specific example of the so‐called breast cancer (BRCA1/2) genes. Using a data set including economic, demographic, and relevant family background information to simulate the market for 10‐year term life insurance, we find generally only modest adverse selection costs associated with such a regulatory ban. However, for family background groups that are at high risk for carrying one of these genes, the efficiency cost of adverse selection may be significant should the test become widely adopted.     

Adult Polycystic Kidney Disease and Insurance

Abstract

Adult Polycystic Kidney Disease (APKD) is a single-gene autosomal dominant genetic disorder leading to end-stage renal disease (ESRD, meaning kidney failure). It is associated with mutations in either of two genes, APKD1 and APKD2, and although diagnosis is still mostly by ultrasonography rather than DNA-based tests, this may change in the future. Recent studies have shown that the rates of onset of ESRD associated with APKD1 mutations are much greater than those associated with APKD2 mutations, a form of genetic heterogeneity that differs from, for example, familial breast cancer. In this paper we model the the impact of mutations in APKD1 or APKD2 on critical illness insurance, extending the work of Gutiérrez and Macdonald (2003), which was based on studies predating DNA-based tests. We then extend the model to life insurance and show that the financial impact is strongly dependent on the availability of treatment (dialysis and transplant), but that if it is available, extra premiums for life insurance are modest. We show that genetic heterogeneity introduces a novel problem, because carrying an APKD2 mutation is less risky than having a family history of APKD. Thus, in jurisdictions where family history may be used in underwriting but genetic tests may not, it may be illegal to use knowledge that benefits the applicant.     

The Asymmetric Information Problem in Taiwan's Cancer Insurance Market

This paper investigates the problem of asymmetric information in Taiwan’s cancer insurance market. Through the survey data, we find evidence of adverse selection existing in this market. Furthermore, we collect additional information on the individual, and find that the individual’s family cancer history contains additional valuable information. It can not only more accurately predict the probability of contracting cancer, as well as predict the willingness to purchase extended cancer insurance, but it can also help to mitigate the severity of adverse selection in the insurance market.     

Adverse Selection in Term Life Insurance Purchasing due to the BRCA1/2 Genetic Test and Elastic Demand

Consumer groups fear that the use of genetic testing information in insurance underwriting might lead to the creation of an underclass of individuals who cannot obtain insurance; thus, these groups want to ban insurance companies from accessing genetic test results. Insurers contend that such a ban might lead to adverse selection that could threaten their financial solvency. To investigate the potential effect of adverse selection in a term life insurance market, a discrete‐time, discrete‐state, Markov chain is used to track the evolution of twelve closed cohorts of women, differentiated by family history of breast and ovarian cancer and age at issue of a 20‐year annually renewable term life insurance policy. The insurance demand behavior of these women is tracked, incorporating elastic demand for insurance. During the 20‐year period, women may get tested for BRCA1/2 mutations. Each year, the insurer calculates the expected premiums and expected future benefit payouts which determine the following year's premium schedule. At the end of each policy year, women can change their life insurance benefit, influenced by their testing status and premium changes. Adverse selection could result from (i) differentiated benefits following test results; (ii) differentiated lapse rates according to test results; and (iii) differentiated reactions to price increases. It is concluded that with realistic estimates of behavioral parameters, adverse selection could be a manageable problem for insurers.     

中国寿险市场存在逆向选择吗?——来自CHARLS数据的经验证据

我国寿险市场是否存在逆向选择问题,在理论和实证两个方面缺乏细致的讨论。本文利用CHARLS数据和正相关理论检验了我国定期寿险和终身寿险市场中的逆向选择问题。我们选取了死亡率这一远期指标和健康状况这一近期指标来衡量消费者的死亡风险,从广延边际和集约边际两个方面利用正相关理论进行了深入的研究。实证结论表明,以死亡率和健康状况衡量的死亡风险与寿险消费负相关或者不相关,即我国寿险市场并不存在逆向选择问题。然后,我们讨论了模型的内生性问题,并根据年龄变量检验了结论的稳健性,实证结果表明我们的结论是稳健的。最后,本文利用双变量Probit模型设计了一个机制,并利用该机制验证了利他动机是我国寿险市场不存在逆向选择的原因之一。     

中国寿险市场存在逆向选择吗?——来自CHARLS数据的经验证据

我国寿险市场是否存在逆向选择问题,在理论和实证两个方面缺乏细致的讨论。本文利用CHARLS数据和正相关理论检验了我国定期寿险和终身寿险市场中的逆向选择问题。我们选取了死亡率这一远期指标和健康状况这一近期指标来衡量消费者的死亡风险,从广延边际和集约边际两个方面利用正相关理论进行了深入的研究。实证结论表明,以死亡率和健康状况衡量的死亡风险与寿险消费负相关或者不相关,即我国寿险市场并不存在逆向选择问题。然后,我们讨论了模型的内生性问题,并根据年龄变量检验了结论的稳健性,实证结果表明我们的结论是稳健的。最后,本文利用双变量Probit模型设计了一个机制,并利用该机制验证了利他动机是我国寿险市场不存在逆向选择的原因之一。     

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.     

Relative Hedging of Systematic Mortality Risk

A number of problematic issues have arisen in anticipation of the potential role of molecular tests for genetic predispositions to illness in risk assessment by insurance underwriters. We argue in this paper that the regrettable history and current risks of genetic discrimination warrant a presumption that genetic predisposition status should not be used in any nonmedical contexts, unless compelling evidence can demonstrate that serious harm will result to third-party interests without such use. We argue that insurers should not be able to initiate testing for genetic predisposition. We also argue that there are many reasons to doubt whether patients’ test results will result in such serious adverse selection as to cause substantial harm to insurance markets, except possibly at higher policy amounts in life or disability income insurance. We conclude that the burden of proof must be on insurers to demonstrate necessity of use in specific cases in which test availability shows high probability of imminent, serious harm to insurance markets.     

保险治理与公司违规——董事高管责任保险的治理效应研究

公司治理机制被认为是影响公司违规的重要因素,然而董事高管责任保险作为一种重要的外部治理机制,是否会影响公司违规尚未得到充分研究。本文研究发现董事高管责任保险显著降低公司违规概率,符合监督效应假说。经工具变量法、Heckman两阶段模型和倾向得分匹配法稳健性检验,上述结论依然成立。影响机制分析表明,董事高管责任保险显著降低了公司违规倾向,显著增加了违规后被稽查的概率,并降低了上市公司的第一类代理成本。对董事高管责任保险的监督职能做进一步分析发现:(1)董事高管责任保险对上市公司经营违规和领导人违规的监督效应更为显著,但对信息披露违规的治理作用并不显著;(2)董事高管责任保险发挥的监督职能与股权属性和保险机构股东治理存在替代效应,与外部审计师治理和董事长CEO二职分离存在互补效应;(3)分组检验结果表明,董事高管责任保险对公司违规的监督效应在外部监管环境较差或者公司内部信息透明度较高的情况下更加显著。本文既提供了保险合约通过公司治理渠道影响公司违规的证据,同时也表明保险机构通过董事高管责任保险为中国资本市场提供了一种较为有效的公司外部治理机制。     

数字普惠金融、商业保险购买与农村居民幸福感

本文首先梳理了数字普惠金融、商业保险购买与农村居民幸福感三者之间的关系,然后基于2017年中国家庭金融调查数据(CHFS)和北京大学数字普惠金融发展指数进行实证检验。结果表明:数字普惠金融发展能够显著提升农村居民幸福感,且该影响对于低年龄段、低收入以及东部地区的家庭更显著。进一步影响机制分析表明:数字普惠金融通过影响家庭商业保险购买进而提升农村居民幸福感。同时,在考虑了内生性和稳健性问题后,结论依然成立。本研究为进一步甄别幸福感的影响因素、理解幸福的深层本质、推动乡村振兴和提升农村居民幸福感提供了新的思路与启示。     

Dynamic Portfolio Choice with Stochastic Wage and Life Insurance

We study optimal insurance, consumption, and portfolio choice in a framework where a family purchases life insurance to protect the loss of the wage earner's human capital. Explicit solutions are obtained by employing constant absolute risk aversion utility functions. We show that the optimal life insurance purchase is not a monotonic function of the correlation between the wage and the financial market. Meanwhile, the life insurance decision is explicitly affected by the family's risk preferences in general. The model also predicts that a family uses life insurance and investment portfolio choice to hedge stochastic wage risk.     

An Insurance Market Simulation With Both Adverse and Advantageous Selection

The theory of adverse selection predicts that high‐risk individuals are more likely to buy insurance than low‐risk individuals if asymmetric information regarding individuals’ risk type is present in the market. The theory of advantageous selection predicts the opposite—a negative relationship between insurance coverage and risk type can be obtained when hidden knowledge in other dimensions (e.g., the degree of risk aversion) is present in addition to the risk type. Using the heterogeneity of insurance buyers in either risk type or risk aversion, we first introduce a classroom‐based insurance market simulation game to show that adverse selection and advantageous selection can coexist. We then explain the underlying concepts using two methods: a mathematical framework based on expected utility theory and an empirical framework based on the results of the game itself. The game is easy to implement, reinforces textbook concepts by providing students a hands‐on experience, and supplements current textbooks by bringing their content up to date with current research.     

Zum fairen Wert der Aktienanlagen eines Lebensversicherungsunternehmens aus ökonomisch-statistischer Perspektive

The present contribution deals with the problem of an adequate determination of the “fair value” of the stock portfolio of a life insurance company taking an economical and statistical point of view. The starting point consists of three standard models from mathematical finance for the development of stock prices, the martingale model, the random walk model and the AR(l)-process, the latter as a basic model capturing mean reversion effects. The best (with respect to mean square error) forecast of the future value of the process given the information about its history then is a natural and model-based concept of a “fair value”. The question remaining now is which of the alternative models gives the best representation of the data. First of all it is explained, that the martingale hypothesis is valid neither from a theoretical from an empirical point of view. However, only in the case of a martingale the market value is the best forecast, i.e. only in this case the market value would correspond with the fair value in an economical-statistical sense. This implies that the common understanding in accounting practice that the market value is a natural candidate for the fair value is not justified in theoretical terms. With respect to the question “random walk or mean reversion?” we perform a statistical-econometrical analysis of a thirty year time series of the monthly price earnings ratios (PER) of the German stock index DAX. As a result, the AR(l)-process reveals to be a better statistical representative of the time series as the random walk. This implies, that the long term equilibrium value of the AR(l)-process is the best forecast of the fair value of the DAX-PER. Given that DAX-PER then — based on different assumptions about the earnings growth rate and the time horizon — corresponding forecasts are calculated for the DAX itself. Finally it is explained that because of the pronounced long term character of life insurance business this model based conception of a long-term fair value is ideally suited for an application to life insurance companies.     

A Continuous-Time Optimal Insurance Design with Costly Monitoring

We provide a theoretical and numerical framework to study optimal insurance design under asymmetric information. We consider a continuous-time model where neither the efforts nor the outcome of an insured firm are observable to an insurer. The insured may then cause two interconnected information problems: moral hazard and fraudulent claims. We show that, when costly monitoring is available, an optimal insurance contract distinguishes the one problem from the other. Furthermore, if the insured’s downward-risk aversion is weak and if the participation constraint is not too tight, then a higher level of the monitoring technology can mitigate both problems.     

涉农信贷与保险耦合模式下地方政府和保险机构行为的博弈分析

运用基于有限理性假设的演化博弈理论,对涉农信贷与保险耦合模式下地方政府和保险机构行为进行分析,得到了地方政府和保险机构同时分别支持和积极参与涉农信贷与保险耦合模式的参数条件,进而得到了涉农信贷与保险耦合模式可持续发展的现实条件,并给出对应的建议。     

Regression-based algorithms for life insurance contracts with surrender guarantees

We present a general framework for pricing life insurance contracts embedding a surrender option. The model allows for several sources of risk, such as uncertainty in mortality, interest rates and other financial factors. We describe and compare two numerical schemes based on the Least Squares Monte Carlo method, emphasizing underlying modeling assumptions and computational issues.     

A stochastic differential game for optimal investment of an insurer with regime switching

We introduce a model to discuss an optimal investment problem of an insurance company using a game theoretic approach. The model is general enough to include economic risk, financial risk, insurance risk, and model risk. The insurance company invests its surplus in a bond and a stock index. The interest rate of the bond is stochastic and depends on the state of an economy described by a continuous-time, finite-state, Markov chain. The stock index dynamics are governed by a Markov, regime-switching, geometric Brownian motion modulated by the chain. The company receives premiums and pays aggregate claims. Here the aggregate insurance claims process is modeled by either a Markov, regime-switching, random measure or a Markov, regime-switching, diffusion process modulated by the chain. We adopt a robust approach to model risk, or uncertainty, and generate a family of probability measures using a general approach for a measure change to incorporate model risk. In particular, we adopt a Girsanov transform for the regime-switching Markov chain to incorporate model risk in modeling economic risk by the Markov chain. The goal of the insurance company is to select an optimal investment strategy so as to maximize either the expected exponential utility of terminal wealth or the survival probability of the company in the ‘worst-case’ scenario. We formulate the optimal investment problems as two-player, zero-sum, stochastic differential games between the insurance company and the market. Verification theorems for the HJB solutions to the optimal investment problems are provided and explicit solutions for optimal strategies are obtained in some particular cases.     

消费者投诉冲击与保险公司业绩北大核心

保险消费者权益保护是保险监管的目标之一,也是保险市场健康发展与成熟的标志。本文以中国保险监管部门开通首个保险消费者投诉热线作为外生政策变量,利用2009-2018年中国163家保险公司数据设计准自然实验,研究了保险消费者投诉热线的外部监督职能及其对保险公司业绩的影响。研究结果表明:保险消费者投诉热线的开通显著降低了消费者权益保护水平更差的保险公司业绩;佣金激励水平越高,保险消费者投诉冲击对消费权益保护水平更差的保险公司业绩的负向影响越显著;区分人身保险公司与财产保险公司后发现,保险消费者投诉冲击对消费者权益保护水平更差的财产保险公司业绩的负向影响更显著。本文研究成果丰富了消费者权益与保险公司治理理论,对保险消费者权益保护实践和保险市场高质量发展具有启示意义。