Terrorism and climate change debates are often characterized by worst‐case thinking, cost neglect, probability neglect, and avoidance of the notion of acceptable risk. This is not unexpected when dealing with extreme events. However, it can result in a frightened public, costly policy outcomes, and wasteful expenditures. The paper will describe how risk‐based approaches are well suited to infrastructure decision‐making for extreme events. Risk management concepts will be illustrated with current research of risk‐based assessment of climate adaptation engineering strategies including designing new houses in Australia subject to cyclones and extreme wind events. It will be shown that small improvements to house designs at a one‐off cost of several thousand dollars per house can reduce damage risks by 70%–80% and achieve billions of dollars of net benefit for community resilience—this helps offset some the predicted adverse effects of climate change for a modest cost. The effect of risk perceptions, insurance, and economic incentives is explored for another climate adaption measure. The paper will also highlight that there is much to be optimistic about the future, and in the ability of risk‐based thinking to meet many challenges.
{"title":"Risk‐based thinking for extreme events: What do terrorism and climate change have in common?","authors":"Mark Stewart","doi":"10.1111/rmir.12256","DOIUrl":"https://doi.org/10.1111/rmir.12256","url":null,"abstract":"Terrorism and climate change debates are often characterized by worst‐case thinking, cost neglect, probability neglect, and avoidance of the notion of acceptable risk. This is not unexpected when dealing with extreme events. However, it can result in a frightened public, costly policy outcomes, and wasteful expenditures. The paper will describe how risk‐based approaches are well suited to infrastructure decision‐making for extreme events. Risk management concepts will be illustrated with current research of risk‐based assessment of climate adaptation engineering strategies including designing new houses in Australia subject to cyclones and extreme wind events. It will be shown that small improvements to house designs at a one‐off cost of several thousand dollars per house can reduce damage risks by 70%–80% and achieve billions of dollars of net benefit for community resilience—this helps offset some the predicted adverse effects of climate change for a modest cost. The effect of risk perceptions, insurance, and economic incentives is explored for another climate adaption measure. The paper will also highlight that there is much to be optimistic about the future, and in the ability of risk‐based thinking to meet many challenges.","PeriodicalId":35338,"journal":{"name":"Risk Management and Insurance Review","volume":"22 6","pages":""},"PeriodicalIF":0.0,"publicationDate":"2024-01-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139441407","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article examines the public–private partnership between the federal government, private insurers, and power companies that enabled the development of commercial nuclear power generation during the 1950s and its evolution to the present day. The public–private process of nuclear insurance development and its impact on nuclear safety is examined through the lens of the Price–Anderson Act enactment and subsequent renewals. The purpose is to show how commercial nuclear insurance evolved over time, and how the indemnification of potentially catastrophic losses influenced the safety behavior of operators, regulators, and other institutions. Evidence is presented demonstrating the relationship between nuclear insurance and safety, using insurance liability and property premiums, and key measures of nuclear safety.
{"title":"Insurance and the public–private management of risk at US commercial nuclear power plants","authors":"John E. Gudgel","doi":"10.1111/rmir.12257","DOIUrl":"https://doi.org/10.1111/rmir.12257","url":null,"abstract":"This article examines the public–private partnership between the federal government, private insurers, and power companies that enabled the development of commercial nuclear power generation during the 1950s and its evolution to the present day. The public–private process of nuclear insurance development and its impact on nuclear safety is examined through the lens of the Price–Anderson Act enactment and subsequent renewals. The purpose is to show how commercial nuclear insurance evolved over time, and how the indemnification of potentially catastrophic losses influenced the safety behavior of operators, regulators, and other institutions. Evidence is presented demonstrating the relationship between nuclear insurance and safety, using insurance liability and property premiums, and key measures of nuclear safety.","PeriodicalId":35338,"journal":{"name":"Risk Management and Insurance Review","volume":"32 29","pages":""},"PeriodicalIF":0.0,"publicationDate":"2024-01-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139442768","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Comparing the InsurTech ecosystems of the United States and Germany (Europe), there are significant regional differences in the choice of business models. While many InsurTechs in the United States have opted for the business model of a fully licensed insurer, this business model is much less common in Europe. In Europe, many InsurTechs seem to shy away from applying for a license as an insurer and limit themselves to the business model of a broker or a managing general agent. This paper analyzes the factors that influence an InsurTech's choice of business model when deciding whether or not to apply for an insurance license. It examines the impact of different local market environments on these decisions, as well as the role that access to venture capital plays in business model decisions and how regulators and their actions influence the decision‐making process.
{"title":"InsurTech in the United States and Germany—What are the drivers behind the different business models?","authors":"Torsten Oletzky","doi":"10.1111/rmir.12254","DOIUrl":"https://doi.org/10.1111/rmir.12254","url":null,"abstract":"Comparing the InsurTech ecosystems of the United States and Germany (Europe), there are significant regional differences in the choice of business models. While many InsurTechs in the United States have opted for the business model of a fully licensed insurer, this business model is much less common in Europe. In Europe, many InsurTechs seem to shy away from applying for a license as an insurer and limit themselves to the business model of a broker or a managing general agent. This paper analyzes the factors that influence an InsurTech's choice of business model when deciding whether or not to apply for an insurance license. It examines the impact of different local market environments on these decisions, as well as the role that access to venture capital plays in business model decisions and how regulators and their actions influence the decision‐making process.","PeriodicalId":35338,"journal":{"name":"Risk Management and Insurance Review","volume":"23 14","pages":""},"PeriodicalIF":0.0,"publicationDate":"2024-01-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139448758","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Lorilee A. Medders, Karen Epermanis, Stephen Avila, David Russell
The American Risk and Insurance Association (ARIA) is a scholarly association devoted to the study of and promotion of risk and insurance economics and has a history of innovative scholarship in fields that are vital to economic development and resiliency throughout the world. Association members have an equally important mission and history of passing along important knowledge to students and the risk professions. The Risk and Insurance Teaching Society (RITS) was established as part of the pedagogical and academic program roles of ARIA. This paper outlines the importance of pedagogy within business higher education and more specifically within the academic discipline of risk and insurance and the increasing role that RITS plays in pedagogical innovation and idea sharing among risk and insurance academics.
{"title":"The importance of risk and insurance teaching within the ARIA mission","authors":"Lorilee A. Medders, Karen Epermanis, Stephen Avila, David Russell","doi":"10.1111/rmir.12253","DOIUrl":"https://doi.org/10.1111/rmir.12253","url":null,"abstract":"The American Risk and Insurance Association (ARIA) is a scholarly association devoted to the study of and promotion of risk and insurance economics and has a history of innovative scholarship in fields that are vital to economic development and resiliency throughout the world. Association members have an equally important mission and history of passing along important knowledge to students and the risk professions. The Risk and Insurance Teaching Society (RITS) was established as part of the pedagogical and academic program roles of ARIA. This paper outlines the importance of pedagogy within business higher education and more specifically within the academic discipline of risk and insurance and the increasing role that RITS plays in pedagogical innovation and idea sharing among risk and insurance academics.","PeriodicalId":35338,"journal":{"name":"Risk Management and Insurance Review","volume":"57 10","pages":""},"PeriodicalIF":0.0,"publicationDate":"2023-12-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138953011","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract Risk attitudes play a pivotal role to understand economic decision‐making, and several measures are used to elicit them in the lab and survey them in the field. We provide a literature review on the most commonly used risk elicitation methods by Holt and Laury (HL) and the Investment Game (IG) by Gneezy and Potters and the General Risk Question (GRQ) utilized in the German Socioeconomic Panel. Based on the metadata from three experiments, we show that the GRQ has a robust and economically relevant association with the IG.
{"title":"On the correlation of self‐reported and behavioral risk attitude measures: The case of the General Risk Question and the Investment Game following Gneezy and Potters (1997)","authors":"Christine Gaertner, Petra Steinorth","doi":"10.1111/rmir.12250","DOIUrl":"https://doi.org/10.1111/rmir.12250","url":null,"abstract":"Abstract Risk attitudes play a pivotal role to understand economic decision‐making, and several measures are used to elicit them in the lab and survey them in the field. We provide a literature review on the most commonly used risk elicitation methods by Holt and Laury (HL) and the Investment Game (IG) by Gneezy and Potters and the General Risk Question (GRQ) utilized in the German Socioeconomic Panel. Based on the metadata from three experiments, we show that the GRQ has a robust and economically relevant association with the IG.","PeriodicalId":35338,"journal":{"name":"Risk Management and Insurance Review","volume":"38 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-10-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135146357","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract In this paper, we develop a model that can capture how COVID‐19 and the subsequent rapid vaccine development against COVID‐19 impacts the value of pools of senior life settlements. The pandemic unexpectedly boosted the mortality rates of senior citizens who had prior diagnoses of certain health conditions. Our model accounts for the existence and concentration of these COVID‐19 comorbidities in portfolios of senior life settlements. It is the concentration of assets linked to the mortality rates of a group who is at elevated risk to COVID‐19 and who is also the primary beneficiaries of the COVID‐19 vaccine that we examine. We illustrate how the shock of the pandemic increases the value of senior life settlements and how the accelerated development and distribution of COVID‐19 vaccines moderated this increase. Our model is general enough to simulate the impact on other financial contracts that are linked to individual mortality rates. These would include life insurance contracts, annuities, and health insurance policies.
{"title":"The shock of COVID‐19 and the shock of rapid vaccine development on the value of senior life settlement contracts","authors":"Carlos E. Ortiz, Charles A. Stone, Anne Zissu","doi":"10.1111/rmir.12251","DOIUrl":"https://doi.org/10.1111/rmir.12251","url":null,"abstract":"Abstract In this paper, we develop a model that can capture how COVID‐19 and the subsequent rapid vaccine development against COVID‐19 impacts the value of pools of senior life settlements. The pandemic unexpectedly boosted the mortality rates of senior citizens who had prior diagnoses of certain health conditions. Our model accounts for the existence and concentration of these COVID‐19 comorbidities in portfolios of senior life settlements. It is the concentration of assets linked to the mortality rates of a group who is at elevated risk to COVID‐19 and who is also the primary beneficiaries of the COVID‐19 vaccine that we examine. We illustrate how the shock of the pandemic increases the value of senior life settlements and how the accelerated development and distribution of COVID‐19 vaccines moderated this increase. Our model is general enough to simulate the impact on other financial contracts that are linked to individual mortality rates. These would include life insurance contracts, annuities, and health insurance policies.","PeriodicalId":35338,"journal":{"name":"Risk Management and Insurance Review","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-10-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135251450","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Nicolaus Grochola, Mark J. Browne, Helmut Gründl, Sebastian Schlütter
Abstract Market risks account for an integral part of insurers' risk profiles. We explore market risk sensitivities of insurers in the United States and Europe. Based on panel regression models and daily market data from 2012 to 2018, we find that sensitivities are particularly driven by insurers' product portfolio. The influence of interest rate movements on stock returns is 60% larger for US than for European life insurers. For the former, interest rate risk is a dominant market risk with an effect that is five times larger than through corporate credit risk. For European life insurers, the sensitivity to interest rate changes is only 44% larger than toward credit default swap of government bonds, underlining the relevance of sovereign credit risk.
{"title":"Exploring the market risk profiles of US and European stock insurers","authors":"Nicolaus Grochola, Mark J. Browne, Helmut Gründl, Sebastian Schlütter","doi":"10.1111/rmir.12248","DOIUrl":"https://doi.org/10.1111/rmir.12248","url":null,"abstract":"Abstract Market risks account for an integral part of insurers' risk profiles. We explore market risk sensitivities of insurers in the United States and Europe. Based on panel regression models and daily market data from 2012 to 2018, we find that sensitivities are particularly driven by insurers' product portfolio. The influence of interest rate movements on stock returns is 60% larger for US than for European life insurers. For the former, interest rate risk is a dominant market risk with an effect that is five times larger than through corporate credit risk. For European life insurers, the sensitivity to interest rate changes is only 44% larger than toward credit default swap of government bonds, underlining the relevance of sovereign credit risk.","PeriodicalId":35338,"journal":{"name":"Risk Management and Insurance Review","volume":"99 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-10-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135591236","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract The early 2020s diversity, equity, and inclusion movement has prompted debate about banning the use of suspect insurance pricing variables because they discriminate against protected classes, such as gender. This paper demonstrates how banning an insurance pricing variable currently used in insurance pricing models can result in regulatory adverse selection if the ban heterogeneously combines policyowners with different expected losses into the same risk class, contrary to risk‐based pricing. The paper begins by describing several recent regulatory and judicial decisions to ban insurance pricing variables. It next describes the process used by insurers to set insurance prices, followed by a discussion of applicable insurance discrimination laws. Using a simple risk aversion model, the paper next examines whether a ban on gender‐based auto insurance pricing in California in 2019 results in regulatory adverse selection. The paper concludes by describing possible alternative pricing variables available to auto insurers if gender‐based pricing is banned.
{"title":"Addressing insurance price discrimination in an era of diversity, equity, and inclusion","authors":"David A. Cather","doi":"10.1111/rmir.12249","DOIUrl":"https://doi.org/10.1111/rmir.12249","url":null,"abstract":"Abstract The early 2020s diversity, equity, and inclusion movement has prompted debate about banning the use of suspect insurance pricing variables because they discriminate against protected classes, such as gender. This paper demonstrates how banning an insurance pricing variable currently used in insurance pricing models can result in regulatory adverse selection if the ban heterogeneously combines policyowners with different expected losses into the same risk class, contrary to risk‐based pricing. The paper begins by describing several recent regulatory and judicial decisions to ban insurance pricing variables. It next describes the process used by insurers to set insurance prices, followed by a discussion of applicable insurance discrimination laws. Using a simple risk aversion model, the paper next examines whether a ban on gender‐based auto insurance pricing in California in 2019 results in regulatory adverse selection. The paper concludes by describing possible alternative pricing variables available to auto insurers if gender‐based pricing is banned.","PeriodicalId":35338,"journal":{"name":"Risk Management and Insurance Review","volume":"247 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"136093243","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract Many studies of the insurance profit cycle use industry‐level annual data and focus on the existence of an AR(2) process. We take a different approach by adopting the idea of possible hard and soft markets, but they are not necessarily cyclical in the classic sense. In addition to aggregated data, we use quarterly firm‐level data to examine loss ratio behavior over time. This approach allows one to assess the firm‐level heterogeneity in the insurance market. We further use a Markov switching model to assess the heterogeneity of response to economic variables. Using a K‐means cluster approach, we examine the different clusters of firms and their different behavior over 2001q1−2020q4.
{"title":"Loss ratio dynamics","authors":"Martin F. Grace","doi":"10.1111/rmir.12247","DOIUrl":"https://doi.org/10.1111/rmir.12247","url":null,"abstract":"Abstract Many studies of the insurance profit cycle use industry‐level annual data and focus on the existence of an AR(2) process. We take a different approach by adopting the idea of possible hard and soft markets, but they are not necessarily cyclical in the classic sense. In addition to aggregated data, we use quarterly firm‐level data to examine loss ratio behavior over time. This approach allows one to assess the firm‐level heterogeneity in the insurance market. We further use a Markov switching model to assess the heterogeneity of response to economic variables. Using a K‐means cluster approach, we examine the different clusters of firms and their different behavior over 2001q1−2020q4.","PeriodicalId":35338,"journal":{"name":"Risk Management and Insurance Review","volume":"40 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-09-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135385733","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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