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Workers' moral hazard and private insurer effort in disability insurance Journal of Risk and Insurance (IF 1.452) Pub Date : 2024-03-16 Pierre Koning, Max van Lent
While it is well known that supplementary private Disability Insurance (DI) has the potential to increase workers' moral hazard, the extra coverage may also increase incentives for private insurers to reduce caseloads by means of prevention and reintegration activities. With unique administrative data on DI contracts of firms in the Netherlands, this paper aims to disentangle these worker and insurer
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Issue Information: Journal of Risk and Insurance 1/2024 Journal of Risk and Insurance (IF 1.452) Pub Date : 2024-02-21
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More options, more problems? Lost in the health insurance maze Journal of Risk and Insurance (IF 1.452) Pub Date : 2024-02-13 Christian Biener, Lan Zou
While the opportunity to choose from a diverse range of options can be advantageous, consumers often struggle to make optimal decisions in the domain of health insurance. In this study, we examine the effects of decision aids on improving choice optimality in a health insurance setting that allows for variations in coverage but is standardized otherwise. While this relatively simplistic setting theoretically
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Multiperiod peer-to-peer risk sharing Journal of Risk and Insurance (IF 1.452) Pub Date : 2024-02-05 Samal Abdikerimova, Tim J. Boonen, Runhuan Feng
Risk sharing has been practiced in various forms in the financial industry. This paper is the first to study both dynamic and static risk-sharing mechanisms for a group of participants over multiple periods. The design of risk-sharing strategies is based on the Pareto optimization of quadratic utilities of participants' reserves. Such a framework builds a connection between portfolio optimization in
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A behavioral gap in survival beliefs Journal of Risk and Insurance (IF 1.452) Pub Date : 2024-01-16 Giovanna Apicella, Enrico G. De Giorgi
Life span uncertainty (longevity risk) impacts several economic decisions. Individuals can form and revise their survival beliefs making use of behavioral heuristics. We propose a model of sentiment, in which individuals are assumed to switch between optimistic and pessimistic expectations of their health. When optimism is persistent in the face of health shocks, or when individuals are more likely
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Availability of the seat belt defense: Implications for auto liability insurance Journal of Risk and Insurance (IF 1.452) Pub Date : 2024-01-16 Patricia Born, J. Bradley Karl, Charles Nyce
A “seat belt defense” allows a defendant in a third-party auto liability event to present evidence of seat belt nonuse to reduce a plaintiff's recovery. When successfully applied, the defense has a direct effect on reducing liability payouts by insurers for accidents. Our analysis reveals that seat belt defense laws are associated with a 10% reduction in auto claims costs, which equates to a reduction
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Annuity selection in the presence of insurer default risk and government guarantees Journal of Risk and Insurance (IF 1.452) Pub Date : 2024-01-03 Pamela Searle, Peter Ayton, Iain Clacher
We investigate whether individuals correctly assess the risk of default of annuity providers and incorporate this information into their decision-making when purchasing an annuity. To do so, we analyze actual retirement product choices from a large administrative data set from Chile and exploit an exogenous change that decreased the coverage of government guarantees against annuity provider default
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How does health spending among demographic groups compare to Affordable Care Act premium regulations? Journal of Risk and Insurance (IF 1.452) Pub Date : 2023-12-12 Caroline Hanson, Alexandra Minicozzi
The Affordable Care Act (ACA) substantially altered regulations in the nongroup and small group health insurance markets and those markets continue to receive significant policy attention. To understand how those markets have functioned in recent years and how they would be impacted by policy changes, we estimated enrollment and spending by age and sex using claims data covering enrollment in ACA risk-adjusted
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The effect of weather index insurance on social capital: Evidence from rural Ethiopia Journal of Risk and Insurance (IF 1.452) Pub Date : 2023-12-08 Halefom Yigzaw Nigus, Eleonora Nillesen, Pierre Mohnen
We study the effect of weather index insurance (WII) uptake on social capital. We measure individual social capital using experimental and survey-based measures and relate it to the actual purchase of WII. We use propensity score matching (PSM) and an instrumental variable (IV) to address endogeneity concerns. Our descriptive and PSM estimates show that WII uptake negatively and significantly affects
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Practical guideline to efficiently detect insurance fraud in the era of machine learning: A household insurance case Journal of Risk and Insurance (IF 1.452) Pub Date : 2023-11-27 Denisa Banulescu-Radu, Meryem Yankol-Schalck
Identifying insurance fraud is a difficult task due to the complex nature of the fraud itself, the diversity of techniques employed, the rarity of fraud cases observed in data sets, and the relatively limited allocation of human, financial, and time resources to carry out investigations. The aim of this paper is to provide a clean and well structured study on modeling fraud on home insurance contracts
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Lower disclosures from customers screened by financial advisors Journal of Risk and Insurance (IF 1.452) Pub Date : 2023-11-22 Doron Samuell, Demetris Christodoulou
We find that there are fewer disclosures of risk factors when customers for life insurance are screened by financial advisors, compared with when similar profile customers are screened directly by the insurer's telephone operators. The lower rate of disclosure is systematic across all medical and lifestyle risks and has a sizeable economic impact on customer premiums. As a result, customers screened
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Building resilience in cybersecurity: An artificial lab approach Journal of Risk and Insurance (IF 1.452) Pub Date : 2023-10-17 Kerstin Awiszus, Yannick Bell, Jan Lüttringhaus, Gregor Svindland, Alexander Voß, Stefan Weber
Based on classical contagion models we introduce an artificial cyber lab: the digital twin of a complex cyber system in which possible cyber resilience measures may be implemented and tested. Using the lab, in numerical case studies, we identify two classes of measures to control systemic cyber risks: security- and topology-based interventions. We discuss the implications of our findings on selected
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Mitigating wildfire losses via insurance-linked securities: Modeling and risk management perspectives Journal of Risk and Insurance (IF 1.452) Pub Date : 2023-09-28 Hong Li, Jianxi Su
This paper investigates the use of catastrophe (CAT) bonds as a risk management tool for wildfires. We introduce a set of Bayesian dynamic models designed to accurately represent wildfire losses, allowing a thorough examination of wildfire CAT bond pricing and hedge effectiveness. Our model captures crucial attributes of wildfire data, such as zero inflation, overdispersion, temporal fluctuations,
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The peer effect in adverse selection: Evidence from the micro health insurance market in Pakistan Journal of Risk and Insurance (IF 1.452) Pub Date : 2023-09-28 Xia Du, Wei Zheng, Yi Yao
The peer effect may amplify adverse selection in social networks, hampering the sustainable operation of microinsurance. This paper uses data from a micro health insurance program in Pakistan to test for the peer effect in renewal decisions and the role it plays in amplifying adverse selection within social networks. The paper finds evidence supporting that insurance renewal decisions are similar among
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Equilibrium reporting strategy: Two rate classes and full insurance Journal of Risk and Insurance (IF 1.452) Pub Date : 2023-09-26 Jingyi Cao, Dongchen Li, Virginia R. Young, Bin Zou
We propose a multiperiod insurance model under a bonus–malus system with two rate classes and consider an insured who has purchased full insurance for her losses. To explore the potential advantage of underreporting her insurable losses, the insured follows a barrier strategy and only reports lossses above the barrier to the insurer. We obtain a unique equilibrium declaration strategy in closed form
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Regulatory capital and asset risk transfer Journal of Risk and Insurance (IF 1.452) Pub Date : 2023-09-05 Kyeonghee Kim, J. Tyler Leverty, Joan T. Schmit
We explore whether life insurers use a unique reinsurance arrangement to manage assets tied to their regulatory capital. Typical reinsurance allows insurers to reduce their regulatory capital by transferring liabilities (reserves), and the associated assets, to reinsurers. With modified coinsurance (ModCo), insurers maintain control of their liabilities and assets while transferring regulatory capital
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Do insurers use internal capital markets to manage regulatory scrutiny risk? Journal of Risk and Insurance (IF 1.452) Pub Date : 2023-08-25 Stephen G. Fier, Andre P. Liebenberg
Empirical evidence suggests that insurance groups allocate capital to members with better performance or growth prospects and use internal capital markets (ICMs) to protect the franchise value of less capitalized members. We propose and test an additional motivation for the use of ICMs—to manage regulatory scrutiny risk. We show that almost 50% of insurers at risk of facing additional regulatory scrutiny
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Optimal insurance contract design with government disaster relief Journal of Risk and Insurance (IF 1.452) Pub Date : 2023-08-16 Sebastian Hinck
I examine the design of optimal insurance contracts considering the possibility of government disaster relief payments. This work focuses on the impact of (risky and ambiguous) government disaster relief on the shape of optimal private insurance contracts. I demonstrate that the optimal insurance contract is a straight deductible contract in the case of a fixed probability of government relief. This
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Fixed and variable longevity income annuities in defined contribution plans: Optimal retirement portfolios taking social security into account Journal of Risk and Insurance (IF 1.452) Pub Date : 2023-08-03 Vanya Horneff, Raimond Maurer, Olivia S. Mitchell
This paper investigates retirees' optimal purchases of fixed and variable longevity income annuities using their defined contribution (DC) plan assets and given their expected social security benefits. As an alternative, we also evaluate using plan assets to boost social security benefits through delayed claiming. Using a calibrated life-cycle model, we determine that including deferred income annuities
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Are female CEOs associated with lower insolvency risk? Evidence from the US property-casualty insurance industry Journal of Risk and Insurance (IF 1.452) Pub Date : 2023-07-31 Jing Li, Jiang Cheng
This paper investigates the relationship between female CEOs and insolvency risk of US property-casualty insurance companies. We show that female CEOs are associated with lower insurer insolvency propensity, higher z-score, and lower standard deviation of return on assets. These findings are robust to alternative econometric specifications to address potential endogeneity concerns and self-selection
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Analyst coverage, executive compensation and corporate risk-taking: Evidence from property–casualty insurance firms Journal of Risk and Insurance (IF 1.452) Pub Date : 2023-07-18 Tao Chen, Shinichi Kamiya, Pingyi Lou, Andreas Milidonis
Using an exogenous drop in analyst coverage introduced by broker closures and mergers, we test for the causal impact of analyst coverage on corporate risk-taking, in an opaque industry. We document an increase in risk using several book-based and market-based risk measures, including tail and default risk measures. Results are driven by firms with stronger managerial risk-taking compensation incentives
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Lapses in long-term care insurance Journal of Risk and Insurance (IF 1.452) Pub Date : 2023-06-19 Leora Friedberg, Wenliang Hou, Wei Sun, Anthony Webb
About a quarter of long-term care insurance (LTCI) policy holders aged 65 let their policies lapse before death, forfeiting all benefits. We find that lapse rates are substantially higher among the cognitively impaired in the Health and Retirement Study. This generates a pernicious form of dynamic advantageous selection, as the cognitively impaired are more likely to use care. Simulations show that
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Improving risk classification and ratemaking using mixture-of-experts models with random effects Journal of Risk and Insurance (IF 1.452) Pub Date : 2023-06-19 Spark C. Tseung, Ian Weng Chan, Tsz Chai Fung, Andrei L. Badescu, X. Sheldon Lin
In the underwriting and pricing of nonlife insurance products, it is essential for the insurer to utilize both policyholder information and claim history to ensure profitability and proper risk management. In this paper, we apply a flexible regression model with random effects, called the Mixed Logit-weighted Reduced Mixture-of-Experts, which leverages both policyholder information and their claim
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Risk classification with on-demand insurance Journal of Risk and Insurance (IF 1.452) Pub Date : 2023-06-15 Alexander Braun, Niklas Haeusle, Paul Thistle
On-demand insurance is an innovative business model from the InsurTech space, which provides coverage for episodic risks. It makes use of a simple fact in a practical way: People differ in their frequency of exposure as well as the probability of loss. The extra dimension of heterogeneity can be used to screen the insured and shifts the utility-possibility frontier outward. We provide a sufficient
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Mitigating moral hazard with usage-based insurance Journal of Risk and Insurance (IF 1.452) Pub Date : 2023-06-12 Julia Holzapfel, Richard Peter, Andreas Richter
Technological progress has improved insurers' ability to monitor policyholders and has led to usage-based insurance (UBI) contracts that incorporate behavioral risk factors in pricing. Economic theory predicts that any informative monitoring signal is adopted in equilibrium. In practice, the demand for UBI is still low to date with market shares in the single digits. We modify the standard moral-hazard
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How the provision of inflation information affects pension contributions: A field experiment Journal of Risk and Insurance (IF 1.452) Pub Date : 2023-06-09 Pascal Büsing, Henning Cordes, Thomas Langer
Ignoring the effects of inflation in retirement planning can have severe consequences for an individual's future financial well-being. Yet, many pension funds do not communicate inflation-related information, presumably for the fear of reduced contributions once the members understand how low the “real” return on saving for retirement is. As an alternative prediction, the provision of inflation information
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On the economics of the longevity risk transfer market Journal of Risk and Insurance (IF 1.452) Pub Date : 2023-06-03 Matthias Börger, Arne Freimann, Jochen Ruß
We present a model of a longevity risk transfer market with different market players (primary insurers, reinsurers, and capital market investors) and investigate how market dynamics and the market players' roles evolve with progressing market saturation. We find that reinsurers' appetite for longevity risk is the key driver in the early stage of market development. Since diversification benefits with
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Insurance demand in the presence of loss-dependent background risk Journal of Risk and Insurance (IF 1.452) Pub Date : 2023-05-31 Sebastian Hinck, Petra Steinorth
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
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Detecting insurance fraud using supervised and unsupervised machine learning Journal of Risk and Insurance (IF 1.452) Pub Date : 2023-05-15 Jörn Debener, Volker Heinke, Johannes Kriebel
Fraud is a significant issue for insurance companies, generating much interest in machine learning solutions. Although supervised learning for insurance fraud detection has long been a research focus, unsupervised learning has rarely been studied in this context, and there remains insufficient evidence to guide the choice between these branches of machine learning for insurance fraud detection. Accordingly
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Linear pooling of potentially related density forecasts in crop insurance Journal of Risk and Insurance (IF 1.452) Pub Date : 2023-05-14 A. Ford Ramsey, Yong Liu
Accurate pricing of crop insurance policies relies on forecasts of probability densities of crop yields. Yield densities are dynamic, time series data on yields are often limited, and yield data are spatially correlated. We examine linear pooling of potentially related, but almost surely misspecified, crop yield density forecasts. The pooled forecasts combine densities from other spatial units based
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Machine learning of surrender: Optimality and humanity Journal of Risk and Insurance (IF 1.452) Pub Date : 2023-05-03 Bowen Jia, Ling Wang, Hoi Ying Wong
We develop a novel machine learning (ML) framework to estimate a surrender charge for variable annuities (VAs) with the balance between human behavior and rational optimality. Optimality accounts for insurers' potential losses from strategic surrenders by policyholders who attempt to take advantage of the market situation. However, policyholders sometimes need to surrender a VA because of sudden personal
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Do pension buyouts help or hurt employees (retirees)? Journal of Risk and Insurance (IF 1.452) Pub Date : 2023-03-08 Yijia Lin, Richard D. MacMinn, Tianxiang Shi
This article compares expected pension default losses of employees and retirees before and after pension buyouts. The comparisons are made using a stochastic model calibrated with market data. The analysis shows that the lower protection level provided by the State Guarantee Association relative to that of the Pension Benefit Guaranty Corporation (PBGC) is a critical factor that explains the welfare
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A common thread linking the design of guarantee and nonescalating payments of public annuities Journal of Risk and Insurance (IF 1.452) Pub Date : 2023-02-14 Sau-Him Paul Lau, Qilin Zhang
Motivated by recent experiences in economies adopting the defined-contribution pension system, we study public annuities in the presence of survival probability heterogeneity. It is found that the difference of annuitization-weighted and unweighted averages of survival probabilities is a useful measure of the severity of adverse selection. We then examine public annuities with a guarantee feature which
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Enhancing claim classification with feature extraction from anomaly-detection-derived routine and peculiarity profiles Journal of Risk and Insurance (IF 1.452) Pub Date : 2023-02-02 Francis Duval, Jean-Philippe Boucher, Mathieu Pigeon
Usage-based insurance is becoming the new standard in vehicle insurance; it is therefore relevant to find efficient ways of using insureds' driving data. Applying anomaly detection (AD) to vehicles' trip summaries, we develop a method allowing to derive a “routine” and a “peculiarity” anomaly profile for each vehicle. To this end, AD algorithms are used to compute a routine and a peculiarity anomaly
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Employer risk-adjustment transitions with inertial consumers: Evidence from CalPERS Journal of Risk and Insurance (IF 1.452) Pub Date : 2023-01-20 Benjamin Handel, Nianyi Hong, Lynn M. Hua, Yuki Ito
Risk-adjustment policies, which transfer money from insurers with healthy consumers to those with sick consumers, are an important tool to contend with adverse selection in health insurance markets. While the steady-state properties of risk-adjustment have been studied extensively, there is less evidence on the transition phase of policy implementation. We study the introduction and removal of risk-adjustment
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How do low-income enrollees in the Affordable Care Act marketplaces respond to cost-sharing? Journal of Risk and Insurance (IF 1.452) Pub Date : 2023-01-20 Kurt Lavetti, Thomas DeLeire, Nicolas R. Ziebarth
The Affordable Care Act requires insurers to offer cost-sharing reductions (CSRs) to low-income consumers on the marketplaces. We link 2013–2015 All-Payer Claims Data to 2004–2013 administrative hospital discharge data from Utah and exploit policy-driven differences in the actuarial value of CSR plans that are solely determined by income. This allows us to examine the effect of cost-sharing on medical
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Health insurers' use of quality improvement expenses to achieve a minimum medical loss ratio requirement Journal of Risk and Insurance (IF 1.452) Pub Date : 2023-01-05 Patricia H. Born, E. Tice Sirmans, Petra Steinorth
Health insurer medical loss ratios (MLRs) are the percentage of premium dollar spent on medical claims and healthcare quality improvement expenses (QIEs). QIEs include activities to improve patient health outcomes and safety, reduce medical errors, and prevent hospital readmissions. The Affordable Care Act mandates minimum MLRs in certain health insurance markets lest rebates be paid to policyholders
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Insurance fraud detection: A statistically validated network approach Journal of Risk and Insurance (IF 1.452) Pub Date : 2022-12-24 Michele Tumminello, Andrea Consiglio, Pietro Vassallo, Riccardo Cesari, Fabio Farabullini
Fraud is a social phenomenon, and fraudsters often collaborate with other fraudsters, taking on different roles. The challenge for insurance companies is to implement claim assessment and improve fraud detection accuracy. We developed an investigative system based on bipartite networks, highlighting the relationships between subjects and accidents or vehicles and accidents. We formalize filtering rules
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Executive compensation and corporate risk management Journal of Risk and Insurance (IF 1.452) Pub Date : 2022-12-12 Jiyeon Yun, James M. Carson, David L. Eckles
We provide the first evidence on the effects of executive compensation on corporate risk management for insurers. Our unique data set allows the construction of a new, more complete measure of corporate risk management behavior. Specifically, we include hedging-driven usage of not only derivatives but also insurance. To address potential endogeneity, we utilize a difference-in-differences approach
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Do insurers respond to active purchasing? Evidence from the Massachusetts health insurance exchange Journal of Risk and Insurance (IF 1.452) Pub Date : 2022-12-12 Mark Shepard, Ethan Forsgren
Health insurance markets face continued challenges with high premiums and limited insurer competition. We describe a unique set of “active purchasing” policies used by Massachusetts' pioneer health insurance exchange to shape the rules of competition and reward lower-price insurers with additional customers. We provide evidence that these policies significantly influenced insurer pricing. Between 2010
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Are health insurers in multiple lines of business less profitable? An examination of scope economies in health insurance Journal of Risk and Insurance (IF 1.452) Pub Date : 2022-11-21 Patricia Born, Amanda Cook, Tice Sirmans, Charles Yang
In markets where companies can offer multiple products or services, production costs may decline, and profitability may increase as business scope expands. Using a sample of health insurers from 2015 to 2018 with data reported in the annual NAIC Supplemental Health Care Exhibit, we test whether scope economies exist among health insurers. We evaluate the relationship between scope and four profitability
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Capital requirements and claims recovery: A new perspective on solvency regulation Journal of Risk and Insurance (IF 1.452) Pub Date : 2022-10-08 Cosimo Munari, Stefan Weber, Lutz Wilhelmy
Protection of creditors is a key objective of financial regulation. Where the protection needs are high, that is, in banking and insurance, regulatory solvency requirements are an instrument to prevent that creditors incur losses on their claims. The current regulatory requirements based on value at risk (V@R) and average value at risk (AV@R) limit the probability of default of financial institutions
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Trading and liquidity in the catastrophe bond market Journal of Risk and Insurance (IF 1.452) Pub Date : 2022-10-03 Markus Herrmann, Martin Hibbeln
We provide first insights into secondary market trading, liquidity determinants, and the liquidity premium of catastrophe bonds. Based on transaction data from TRACE (Trade Reporting and Compliance Engine), we find that cat bonds are traded less frequently during the hurricane season and more often close to maturity. Trading activity indicates that the market is dominated by brokers without a proprietary
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On the cost-of-capital rate under incomplete market valuation Journal of Risk and Insurance (IF 1.452) Pub Date : 2022-09-27 Hansjörg Albrecher, Karl-Theodor Eisele, Mogens Steffensen, Mario V. Wüthrich
In this paper we discuss the concept of the cost-of-capital (CoC) rate for an insurance company as an equilibrium in the economic triangle of policyholders, shareholders, and the regulator. This provides a possible rationalization and an economic foundation for a quantity that is widely used in practice but whose value is typically neither technically nor economically well justified. We show how it
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Encouraging resiliency through autoenrollment in supplemental flood insurance coverage Journal of Risk and Insurance (IF 1.452) Pub Date : 2022-09-08 Lynn Conell-Price, Carolyn Kousky, Howard Kunreuther
Flooding is the most common and costly natural disaster, with losses escalating due to climate change. For millions of US homes exposed to flood risk, property-level investments in flood resilience offer an attractive strategy to manage losses. But financing such investments remains a challenge. One option is to harness insurance. We use field data of residential flood insurance purchases from a private
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Personal taxes, cost of insurer equity capital, and the case of offshore hedge fund reinsurers Journal of Risk and Insurance (IF 1.452) Pub Date : 2022-09-03 Greg Niehaus
Insurer investment returns are taxed in the United States at the corporate level and at the personal level when they are distributed to shareholders. This paper examines the implications of personal taxes for the tax cost on insurers equity capital and how these tax costs have varied over time under different tax regimes and with different asset portfolios. The paper also discusses how personal taxes
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Insurance demand experiments: Comparing crowdworking to the lab Journal of Risk and Insurance (IF 1.452) Pub Date : 2022-09-01 Johannes G. Jaspersen, Marc A. Ragin, Justin R. Sydnor
We analyze an insurance demand experiment conducted in two different settings: in-person at a university laboratory and online using a crowdworking platform. Subject demographics differ across the samples, but average insurance demand is similar. However, choice patterns suggest online subjects are less cognitively engaged—they have more variation in their demand and react less to changes in exogenous
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Risk pooling and solvency regulation: A policyholder's perspective Journal of Risk and Insurance (IF 1.452) Pub Date : 2022-08-23 Markus Huggenberger, Peter Albrecht
We investigate the benefits of risk pooling for the policyholders of stock insurance companies under different solvency standards. Using second-degree stochastic dominance, we document that the utility of risk-averse policyholders is increasing in the pool size if the equity capital is proportional to the premiums written. To the contrary, an increase in the pool size can reduce the policyholders'
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Do time preferences explain low health insurance take-up? Journal of Risk and Insurance (IF 1.452) Pub Date : 2022-08-10 Aurélien Baillon, Owen O'Donnell, Stella Quimbo, Kim van Wilgenburg
Low insurance take-up in low-income populations is not easily explained by the standard single-period expected utility model of insurance that overlooks the relevance of time preference when liquidity is constrained. We design field survey instruments to elicit quasi-hyperbolic time preferences, as well as prospect theory risk preferences, and use them to examine whether time preferences explain health
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Opaque liabilities, learning, and the cost of equity capital for insurers Journal of Risk and Insurance (IF 1.452) Pub Date : 2022-08-07 Chia-Chun Chiang, Hugh Hoikwang Kim, Greg Niehaus
Analyzing major US property–liability insurers, we find that their cost of equity capital is negatively associated with their underwriting performance, but not with their investment performance. We provide cross-sectional evidence that the difference is attributable, at least in part, to investor learning about opaque insurer liabilities. We also find that capital market and product market imperfections
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Cheaper by the bundle: The interaction of frictions and option exercise in variable annuities Journal of Risk and Insurance (IF 1.452) Pub Date : 2022-08-05 Daniel Bauer, Thorsten Moenig
Typical Variable Annuity products combine complex baseline contracts at substantial fees with optional guarantees. We argue this product design aligns with the benefits of bundling to the provider, to the extent that the baseline option features can reduce total replication value. This is possible due to market frictions, and particularly taxation rules, affecting policyholder exercise behavior. We
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Wait your turn: Pension incentives, workplace rules, and labor supply among Philadelphia municipal workers Journal of Risk and Insurance (IF 1.452) Pub Date : 2022-08-05 David G. McCarthy, Po-Lin Wang
Little academic work has examined the labor supply response to pension incentives at the intensive margin. We explore this issue using individual-level administrative and pension data for Philadelphia city employees, where workers have some choice about whether or not to perform overtime, which is pensionable. We document large variations across workers in the incentives to do overtime provided by
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The interplay between risk adjustment and risk rating in voluntary health insurance Journal of Risk and Insurance (IF 1.452) Pub Date : 2022-07-31 Peter Paul Klein, Richard van Kleef, Josefa Henriquez, Francesco Paolucci
Many regulated health insurance markets include risk adjustment (aka risk equalization) to mitigate selection incentives for insurers. Empirical studies on the design and evaluation of risk-adjustment algorithms typically focus on mandatory health insurance schemes. This paper considers risk adjustment in the context of voluntary health insurance, as found in Chile, Ireland, and Australia. In addition
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Why do insurers fail? A comparison of life and nonlife insurance companies from an international database Journal of Risk and Insurance (IF 1.452) Pub Date : 2022-07-01 Olivier de Bandt, George Overton
This paper tests the claim that insurers often engage in risk-shifting years before the materialization of a failure. It compares the mechanisms of insurance insolvency across different jurisdictions, using a first-of-its-kind international database assembled by the authors, merging individual financial data together with information on impairments over the last 30 years in four of the largest insurance
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Race discrimination in the adjudication of claims: Evidence from earthquake insurance Journal of Risk and Insurance (IF 1.452) Pub Date : 2022-06-03 Xiao Lin, Mark J. Browne, Annette Hofmann
Catastrophic events affect many people simultaneously. We exploit earthquake claim characteristics to test for racial discrimination in the adjudication of insurance claims. Using data from the Oklahoma Department of Insurance, the US Geological Survey, and the US census, we study eight earthquakes between 2010 and 2016 that were linked to oil and gas drilling activities. We test whether claim resolutions
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Risk-sharing rules and their properties, with applications to peer-to-peer insurance Journal of Risk and Insurance (IF 1.452) Pub Date : 2022-06-03 Michel Denuit, Jan Dhaene, Christian Y. Robert
This paper offers a systematic treatment of risk-sharing rules for insurance losses, based on a list of relevant properties. A number of candidate risk-sharing rules are considered, including the conditional mean risk-sharing rule proposed in Denuit and Dhaene and the newly introduced quantile risk-sharing rule. Their compliance with the proposed properties is established. Then, methods for building
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Cyber risk management in the US banking and insurance industry: A textual and empirical analysis of determinants and value Journal of Risk and Insurance (IF 1.452) Pub Date : 2022-05-21 Nadine Gatzert, Madeline Schubert
In this paper, we first construct a cyber risk consciousness score using a text mining algorithm, applied to annual reports of large- and mid-cap US banks and insurers from 2011 to 2018. We next categorize the firms' cyber risk management based on keywords to study determinants and value-relevance. Our results show an increasing cyber risk consciousness, regardless of the industry. In addition, for
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Driving while unauthorized: Auto insurance remains unchanged when providing driver licenses to unauthorized immigrants in California Journal of Risk and Insurance (IF 1.452) Pub Date : 2022-05-12 Hans Lueders, Micah Mumper
Several states have recently implemented driver license reforms that give unauthorized immigrants access to driver licenses, aiming to reduce uninsured driving and lower premium costs. We test this expectation in the context of California's Assembly Bill 60 (AB60). AB60 gives about 2.6 million unauthorized immigrants access to driver licenses, making it the largest policy of its kind. Exploiting cross-county
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Flexible insurance for long-term care: A study of stated preferences Journal of Risk and Insurance (IF 1.452) Pub Date : 2022-04-25 Shang Wu, Hazel Bateman, Ralph Stevens, Susan Thorp
Aging societies need efficient and flexible systems to finance care for the frail elderly. We study pre-retirees' demand for flexible insurance that can finance informal long-term care by paying income in poor health states instead of reimbursing formal care costs. We collect and analyze stated preferences for this long-term care income product, and preferences for informal care. When asked to allocate