Gunratan Lonare, Gene Lai, Sangyong Han, Chia-Ling Ho
We investigate the relationship between CEOs' past distress experience and risk‐taking in US property–liability insurance companies. Our evidence shows that CEOs' past distress experience is negatively associated with insurers' risk‐taking behavior, suggesting that CEOs with distress experiences tend to take lower levels of risk in making financial decisions for their firms. The results are robust to using alternative measures of risk‐taking, including value at risk, expected shortfall, volatility of stock return, idiosyncratic volatility, systematic volatility, underwriting risk, and investment risk. Additionally, our results pass a placebo test, and we mitigate endogeneity concerns with the propensity score matching method.
{"title":"CEO past distress experience and risk‐taking: Evidence from US property–liability insurance firms","authors":"Gunratan Lonare, Gene Lai, Sangyong Han, Chia-Ling Ho","doi":"10.1111/rmir.12262","DOIUrl":"https://doi.org/10.1111/rmir.12262","url":null,"abstract":"We investigate the relationship between CEOs' past distress experience and risk‐taking in US property–liability insurance companies. Our evidence shows that CEOs' past distress experience is negatively associated with insurers' risk‐taking behavior, suggesting that CEOs with distress experiences tend to take lower levels of risk in making financial decisions for their firms. The results are robust to using alternative measures of risk‐taking, including value at risk, expected shortfall, volatility of stock return, idiosyncratic volatility, systematic volatility, underwriting risk, and investment risk. Additionally, our results pass a placebo test, and we mitigate endogeneity concerns with the propensity score matching method.","PeriodicalId":35338,"journal":{"name":"Risk Management and Insurance Review","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2024-03-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140362326","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}
Contributions to election campaigns are tracked by the National Institute on Money in State Politics. In this paper, we use this data to examine patterns in political campaign contributions made by the insurance industry. We compile a state‐level data set that aggregates over 67,000 election campaign contributions to insurance regulators and governors; we show that candidate incumbency status is associated with a 20% to 30% increase in the share of contributions made to the incumbent insurance regulator's political party. Because incumbents are overwhelmingly favored to win elections, the industry's behavior suggests that insurers are more concerned with access to the elected official than with supporting a candidate that shares the industry's goals.
全国州政治中的金钱研究所（National Institute on Money in State Politics）对竞选捐款进行了跟踪。在本文中，我们利用这些数据研究了保险业政治竞选捐款的模式。我们汇编了一个州一级的数据集，其中汇总了超过 67,000 笔对保险监管机构和州长的竞选捐款；我们的研究表明，候选人的在职状态与现任保险监管机构所在政党获得的捐款份额增加 20% 至 30% 相关。由于现任者在选举中占压倒性优势，该行业的行为表明，保险公司更关心的是如何获得当选官员的支持，而不是支持与该行业目标一致的候选人。
{"title":"The political economy of campaign contributions in insurance markets","authors":"Patricia Born, J. B. Karl, Lawrence Powell","doi":"10.1111/rmir.12263","DOIUrl":"https://doi.org/10.1111/rmir.12263","url":null,"abstract":"Contributions to election campaigns are tracked by the National Institute on Money in State Politics. In this paper, we use this data to examine patterns in political campaign contributions made by the insurance industry. We compile a state‐level data set that aggregates over 67,000 election campaign contributions to insurance regulators and governors; we show that candidate incumbency status is associated with a 20% to 30% increase in the share of contributions made to the incumbent insurance regulator's political party. Because incumbents are overwhelmingly favored to win elections, the industry's behavior suggests that insurers are more concerned with access to the elected official than with supporting a candidate that shares the industry's goals.","PeriodicalId":35338,"journal":{"name":"Risk Management and Insurance Review","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2024-03-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140218278","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}
Frank Cremer, Barry Sheehan, Michael Fortmann, Martin Mullins, Finbarr Murphy, Stefan Materne
Cybersecurity requires an effective risk transfer regime and a well‐functioning insurance market to improve stakeholder resilience. However, rapid cyber threat adaptation, limited data availability, and inadequate risk understanding pose significant challenges for the insurance industry and its customers. This research uses a mixed methods approach to analyze the inclusions, exclusions, and suitability of current cyber policies in the German cyber insurance market. The study analyzes 41 cyber insurance policies, representing about 80% of the German cyber insurance market. This examination is supported by semistructured interviews with 23 cyber insurance experts. The authors find that there are no standardized cyber policy wordings, and insurers use different terms and definitions in their insurance policies. Specifically, the results show a significant lack of clarity around coverages and exclusions. This research contributes to the cybersecurity risk management community and will enable businesses, insurance companies, and policymakers to better understand, measure, and manage cyber risk.
{"title":"Bridging the cyber protection gap: An investigation into the efficacy of the German cyber insurance market","authors":"Frank Cremer, Barry Sheehan, Michael Fortmann, Martin Mullins, Finbarr Murphy, Stefan Materne","doi":"10.1111/rmir.12261","DOIUrl":"https://doi.org/10.1111/rmir.12261","url":null,"abstract":"Cybersecurity requires an effective risk transfer regime and a well‐functioning insurance market to improve stakeholder resilience. However, rapid cyber threat adaptation, limited data availability, and inadequate risk understanding pose significant challenges for the insurance industry and its customers. This research uses a mixed methods approach to analyze the inclusions, exclusions, and suitability of current cyber policies in the German cyber insurance market. The study analyzes 41 cyber insurance policies, representing about 80% of the German cyber insurance market. This examination is supported by semistructured interviews with 23 cyber insurance experts. The authors find that there are no standardized cyber policy wordings, and insurers use different terms and definitions in their insurance policies. Specifically, the results show a significant lack of clarity around coverages and exclusions. This research contributes to the cybersecurity risk management community and will enable businesses, insurance companies, and policymakers to better understand, measure, and manage cyber risk.","PeriodicalId":35338,"journal":{"name":"Risk Management and Insurance Review","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2024-03-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140257942","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}
Three archetypical models of insurance demand based, respectively, on risk aversion, state‐dependent marginal utility, and imperfectly divisible consumption are presented. These models show that the common principle underlying insurance is not always a risk transfer but meeting a conditional need. In general, insurance aligns the risk in one's financial endowment with the risk in one's financial needs. This extension of the traditional view of insurance allows simple generalizations of classic results, has implications for policy advice, and may help guiding further research.
{"title":"Why do people buy insurance? A modern answer to an old question","authors":"Markus Rieger‐Fels","doi":"10.1111/rmir.12260","DOIUrl":"https://doi.org/10.1111/rmir.12260","url":null,"abstract":"Three archetypical models of insurance demand based, respectively, on risk aversion, state‐dependent marginal utility, and imperfectly divisible consumption are presented. These models show that the common principle underlying insurance is not always a risk transfer but meeting a conditional need. In general, insurance aligns the risk in one's financial endowment with the risk in one's financial needs. This extension of the traditional view of insurance allows simple generalizations of classic results, has implications for policy advice, and may help guiding further research.","PeriodicalId":35338,"journal":{"name":"Risk Management and Insurance Review","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2024-02-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140427261","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}
Ratemaking and risk‐based pricing revolve around the value at risk, involving a tendency of higher values implying higher premiums. Traditionally, vehicle values are set at “list price” and depreciate over time on a one‐size‐fits‐all factor model. If values change over time, so should premiums, but a single factor table that only goes downward to flat is out of sorts with today. In today's transactional data streams, vehicle features, and values can be easily observed—of note, a shift in product mix that has more options and higher retained values creates a gap in actual versus traditionally expected insurance values. This gap most acutely appears at the vehicle “as built” level, which is more granular than current segmentation levels of insurance ratemaking vehicle valuation analysis. The result is leaving companies to simply raise base rates universally until they can adapt more flexible price‐to‐value methods at an “as built” price accuracy sophistication level.
{"title":"Risk management opportunities in auto insurance: A focus on the value of vehicles","authors":"Martin Ellingsworth","doi":"10.1111/rmir.12259","DOIUrl":"https://doi.org/10.1111/rmir.12259","url":null,"abstract":"Ratemaking and risk‐based pricing revolve around the value at risk, involving a tendency of higher values implying higher premiums. Traditionally, vehicle values are set at “list price” and depreciate over time on a one‐size‐fits‐all factor model. If values change over time, so should premiums, but a single factor table that only goes downward to flat is out of sorts with today. In today's transactional data streams, vehicle features, and values can be easily observed—of note, a shift in product mix that has more options and higher retained values creates a gap in actual versus traditionally expected insurance values. This gap most acutely appears at the vehicle “as built” level, which is more granular than current segmentation levels of insurance ratemaking vehicle valuation analysis. The result is leaving companies to simply raise base rates universally until they can adapt more flexible price‐to‐value methods at an “as built” price accuracy sophistication level.","PeriodicalId":35338,"journal":{"name":"Risk Management and Insurance Review","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2024-02-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139958273","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}
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":null,"pages":null},"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":null,"pages":null},"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":null,"pages":null},"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":null,"pages":null},"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}
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