Corporate Risks and Property Insurance: Evidence From the People's Republic of China

Using panel data (1997–1999) for 235 publicly listed companies in the People's Republic of China, this study empirically tests the linkage between corporate risks and the decision to purchase property insurance and its financial extent. To achieve these objectives, we first estimate a probit insurance participation decision model and then a fixed‐effects insurance volume decision model with Heckman's sample selection correction. Our results indicate that the managerial decision to purchase property insurance is positively related to company size and insolvency risks. By contrast, the amount of property insurance purchased is positively related to systematic risks but negatively related to insolvency and unsystematic risks and company size. We find that the amount of property insurance used by Chinese companies can also be affected by other factors (e.g., the cash flow constraints). In addition, the decision to purchase property insurance and the financial extent to which it is used varies among Chinese companies according to their geographical location. However, state ownership does not appear to be an important determinant of the purchase of property insurance by Chinese publicly listed companies.     

The corporate purchase of property insurance: Chinese evidence

Using a panel data set (1997–1999) for 235 publicly listed companies in the People's Republic of China (PRC), this study tests empirically whether the purchase of property insurance mitigates principal-agent (agency) incentive conflicts. In contrast to prior studies, we first estimate a probit insurance participation decision model and then a fixed-effects insurance volume decision model (with Heckman's sample selection correction) in order to shed light on the determinants of both property insurance participation and volume decisions. Our results suggest that a major motivation for the corporate purchase of insurance in China appears to be the mitigation of agency conflicts. Additionally, various ownerships seem to have different impacts on the corporate purchase of insurance in China. Moreover, the results show that the same factor can have different impacts on the insurance participation and volume decisions, and that binding financial conditions may be a key factor accounting for such observed differences.     

Understanding the motivations of coastal residents to voluntarily purchase federal flood insurance

Federally-backed flood insurance is the primary mechanism by which residents in the United States (US) prepare for and recover from floods. While there is a growing literature on the general uptake of flood insurance, little work has been done to address the factors motivating residents to voluntarily buy and maintain federally-based insurance policies. We address this issue by conducting a survey of coastal residents in four localities in Texas and Florida. Based on survey responses, we quantitatively examine the factors influencing whether residents located outside of the 100-year floodplain obtain insurance policies when it is not required. Using two-sample t-tests and binary logistic regression analysis to control for multiple contextual and psychological variables, we statistically isolate the factors contributing most to the decision to purchase insurance. Our findings indicate that a resident located outside the 100-year floodplain who has voluntarily purchased federal flood insurance can be characterized, on average, as more highly educated, living in relatively expensive homes, and a long-time resident who thinks about flood hazard relatively infrequently but who, nonetheless, thinks flood insurance is relatively affordable. Unexpectedly, the physical proximity of a respondent to flood hazard areas makes little or no discernible difference in the decision to obtain flood insurance.     

A performance analysis of participating life insurance contracts

Traditional life insurance products, in particular participating life insurance contracts, are often criticized. Their performance is often said to be poor compared to other investment alternatives. Interestingly, this perception appears to persist although very little research has been conducted into the performance of participating life insurance contracts. But are participating life insurance contracts actually bad for policyholders? We conduct a performance analysis based on contracts offered in the German market, in order to provide evidence to support decision making by policyholders.     

Firm's demand for insurance: An explorative approach

This paper addresses the question, what influences the insurance demand of companies and examines the influence of managerial risk aversion in this decision process. An explorative research approach based on qualitative data analysis is applied to explore the factors influencing the insurance related decision behavior in organizations. Using interviews and observations of firm's insurance managers, the results identify interdependencies between factors of insurance demand, such as ownership structure, managerial discretion, volatility of earning, size, services of the insurer, and business diversification which allows to propose a framework of contextual factors affecting company's insurance demand. Within this framework, the data imply managerial risk attitudes as decisive factor in the decision process about insurance demand in companies. This explorative study enriches the existing theories of firms’ insurance demand and addresses feedback from practice into theory.     

Deciding Whether to Invest in Mitigation Measures: Evidence From Florida

Prior research provides theoretical insight into factors likely to impact the decision to mitigate such as the degree of risk aversion, the cost of market insurance, and the cost of self‐insurance. We provide empirical evidence related to several hypotheses from the self‐insurance literature on the decision to mitigate.     

台风风险的可保性及其市场供求行为分析

台风灾害每年都给中国东部沿海地区造成巨大的经济损失,但到目前我国保险市场还没有单一责任的台风保险来分担此风险。台风保险是一种准公共物品,如果政府能够介入该保险市场,其可保性则得以提高。对有政府支持的台风保险供求行为博弈分析表明,农户购买台风保险的保险费用占其总产出的百分比在农户和保险公司的决策中至关重要。     

Wann lohnt sich die Beschaffung zusätzlicher Informationen? Darstellung des Entscheidungsproblems und der Ermittlung des Wertes von Informationen am Beispiel des Kalküls einer Versicherung

Insurance companies decide on refusal or acceptance (and in this case: the conditions) of a potential policyholder. This paper deals with the question whether the use of genetic testing is advantageous or not. Insurance companies have to consider costs and benefits of the additional information gained by genetic testing. The science of economics, in particular decision theory, helps investigating how insurance companies are able to optimize their outcomes. This paper deals with relevant basics of decision theory and solves the problem by making use of Jakob Marschak’s approach of information economics. The value of additional information attainable from genetic testing is calculated and integrated in the decision process of an insurance company. In doing so, the model is applied to the hemochromatosis disease. Nevertheless, the model is demonstrated in a general manner. It should be easy to adapt the approach to other illness syndromes, medical checkups or medical decision problems.     

基于社会主义新农村建设的商业保险发展策略

建设社会主义新农村离不开商业保险的保驾护航,同时也为商业保险提供了千载难逢的发展机遇.扎实做好保险宣传普及工作,提高农村公众的参与度;积极争取政府政策扶持,为农村保险发展创造良好环境;因地制宜地细分市场,开发适销对路的农村保险产品;完善服务措施等都是促进农村商业保险发展的有效手段,也是抓住这一机遇谋求自身发展,并积极推动社会主义新农村建设的重要措施.     

Extending financial literacy to insurance literacy: a survey approach

We extend behavioural research in investment and retirement savings to insurance, by investigating factors that may influence individuals’ insurance decision making. These factors include financial literacy, specialist insurance education and some behavioural biases. Based on a definition of insurance literacy that requires both having, and applying insurance knowledge, we find from a survey of postgraduate students that financial literacy does not necessarily translate to insurance literacy, whereas more specialised education can improve insurance literacy. Results also indicate specialist education potentially reduces susceptibility to anchoring effects.     

Life Insurers’ Decision to Use Retained Asset Accounts for Life Insurance Payouts: A Case Study

This case study allows students in a variety of insurance courses to analyze the use of retained asset accounts for insurance policy payouts to beneficiaries that, when reported by Bloomberg Magazine in a series of articles published in 2010, led to litigation and the enactment of statutory and regulatory reforms in some states. In analyzing this multifaceted case, students can be assigned to examine insurance laws and regulations, insurance operations, decision making under uncertainty, ethics, reputation, and/or customer relations.     

Wealth, Income, and Optimal Insurance

This article considers the decision to purchase insurance against possible losses of a property or wealth. The decision involves a standard economic trade‐off between the benefit of protection against loss and the cost of insurance premium. The premium is paid out of the income and decreases the consumption of other goods and services, rather than out of wealth and decreases the property or wealth. The demand for insurance depends mainly on the income and preferences. As a result, unlike in the standard model, a fair premium is neither necessary nor sufficient for the optimality of full coverage insurance. Rather, the individuals with higher incomes purchase full coverage insurance even at unfair prices of insurance while the individuals with lower income purchase partial coverage insurance at a fair price.     

Umwelthaftungs-Richtlinie 2004/35 EG (UH-RL) – Deckungsvorsorge obligatorisch?

As far as the invironmental liability guideline stipulates precautions by insurance cover, in its report scheduled for 2010 the Commission should leave the decision to the participants to provide adequate insurance cover. For a compulsary insurance there is no regulation need, as an active competition already exists. A state monopoly insurer would not be able to supervise more sufficiently damage precaution and prevention than any privately organised insurer and would be less able to ensure enevitable development and reasearch guarantee due to emptybudgets. A compulsary insurance would run contrary personal responsibility and own initiative of the damage causer.     

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.     

An Analysis of the Demand for Earthquake Insurance

This research examines the decision to purchase earthquake insurance by analyzing data on earthquake insurance price and penetration in the New Madrid fault zone in Missouri. Earthquake risk is of concern to consumers, the insurance industry, industry regulators, and government agencies because of the potentially catastrophic nature of losses resulting from a major earthquake. Despite the significance of the earthquake peril, the recent literature does not contain estimates of the price and income elasticity of the demand for earthquake insurance. Our analysis indicates that homeowners acquire earthquake insurance because of risk considerations, at higher levels of risk the demand for earthquake insurance is higher, and the price of earthquake coverage does not provide incremental information in explaining the demand for earthquake coverage.     

Life Insurance Lapse Behavior

Life insurance policy lapses are detrimental to issuing insurers when lapses substantially deviate from insurer expectations. The extant literature has proposed and tested, using macroeconomic data, several hypotheses regarding lapse determinants. While macroeconomic data are useful in providing a general test of lapse determinants, the use of aggregate data precludes an analysis of microeconomic factors that may drive the lapse decision. We develop and test a microeconomic model of voluntary life insurance lapse behavior and provide some of the first evidence regarding household factors related to life insurance lapses. Our findings support and extend the prior evidence regarding lapse determinants. Consistent with the emergency fund hypothesis we find that voluntary lapses are related to large income shocks, and consistent with the policy replacement hypothesis we find that the decision to lapse a life insurance policy is directly related to the purchase of a different life insurance policy. We also find that age is an important moderating factor in the lapse decision. Changes in income appear to more directly affect the decision to lapse for younger households, while they are generally unrelated to the lapse decision for older households.     

Betriebsunterbrechungsversicherung bei kleinen und mittleren Unternehmen

The business interruption caused by a property claim is an existential risk both for large industrial companies and for small to medium enterprises (SME). It is especially relevant for companies working on a more complex sales and production infrastructure. Statistics show that in case of a large property claim the cost of the accompanying business interruption claim frequently exceeds the property claim. In Germany, however, the share of companies opting for business interruption insurance is much smaller than those opting for property insurance. This is especially true for SME that can hardly cover the risk themselves. The goal of this paper is to analyze the insurance decision for a business interruption policy with a special focus on SME. As a database we use the results of a representative survey among 1802 German SME with up to 100 employees. Our results show that the decision for a business interruption policy is not only dependent on hard factors such as company size and industry, but also driven by the so-called “insurance mentality”, which includes risk aversion, insurance know-how and price-sensitivity.     

Ein simulationsbasierter Renditevergleich von fondsgebundenen Altersvorsorgeprodukten

The demographic change and its consequences forces citizens of Germany to realign towards private insurance products. This decision should be based on structured analyses. Most recent studies were inconclusive regarding this decision.As investments are commonly compared using average developments of the underlying, the possibility to switch the underlying during the duration of the investment, they are not represented accordingly and therefore bias the results of the calculation. We perform a thorough simulation analysis to compare two competing investments for retirement provisions while respecting additional costs and tax implications of switching.Without any switching the evaluation of other studies is generally verified (pure investment beats insurance product). But as soon as switching is implemented the tax advantage of insurance products is overcompensating the cost advantage of a pure investment solution. Further research should aim in this direction.     

Trust,happiness, and households’ financial decisions

A recent line of research highlights trust as an important element guiding the decision of households to invest into risky financial assets and insurance products. This paper contributes to this literature by identifying happiness as another key driver of the same decision. Using detailed survey data from a sample of Dutch households, we show that the impact of happiness on households’ financial decisions works in the opposite direction and is more economically important compared to trust. Specifically, happiness leads to a lower probability of investing into risky financial assets and having insurance, while trust has the usual positive effect found in the literature. Furthermore, the negative effect of happiness on the ownership of risky financial assets is about 6% higher compared to the positive equivalent of trust. Similarly, the negative effect of happiness on the ownership of insurance is 3% higher than the positive effect of trust.