Journal of Risk and Insurance最新文献

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 to the challenge of mitigating selection by insurers, regulators of these voluntary schemes have to deal with selection by consumers in and out of the market. A strategy for mitigating selection by consumers is to apply some form of risk rating. Our paper shows how risk adjustment and risk rating interact: (1) risk rating reduces the need for risk adjustment and (2) risk adjustment reduces premium variation across rating factors, thereby increasing incentives for consumers to select in and out of the market.

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 markets in the world (France, Japan, the UK, and the United States). Results show evidence that low profitability is a leading indicator of failures. Further, there is an asymmetry between life insurance, where bond investment is highly significant, and nonlife insurance sectors, where operating inefficiency plays a larger role. Moreover, this paper highlights differences across countries: a stronger reaction to operating inefficiency in nonlife insurance in France and a less positive impact of bond investment in life insurance in Japan. Both results are linked to differences in the functioning of insurance markets.

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 differ among zip-code areas with different racial compositions, all else equal. We find evidence that claims from areas with higher percentages of Black population were less likely to result in payment, and when those claims did get paid, payments were lower in those areas. We further investigate the mechanisms through which such discrimination may exist. We do not find evidence that the percentages of Black, Native, or Asian population in an area are associated with the filing of marginal claims. We do find that areas with higher percentages of Hispanic population file fewer marginal claims.

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 new risk-sharing rules are discussed. The results derived in this paper are helpful in the development of peer-to-peer insurance (or crowdsurance), as well as to manage contingent risk funds where a given budget is distributed among claimants.

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 the entire sample we find that firms belonging to the banking industry, with a higher cyber risk consciousness score and a higher general risk awareness are more likely to implement cyber risk management, which also holds for both industries separately. We find the opposite in the case of profitable firms for the entire sample and the insurer subsample. Finally, we observe a significant positive relationship between cyber risk management and firm value measured by Tobin's Q for the entire sample and the subsamples of banks and insurers.

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 variation in the estimated number of AB60 licenses, we find no measurable effects on auto insurance uptake or premium costs. A power analysis and multiple robustness checks corroborate this conclusion. We interpret our results to suggest that most newly licensed unauthorized immigrants were already driving before the reform to access work and basic services. Furthermore, unauthorized drivers may already have had access to an insured vehicle. Our research revisits prominent claims about the effects of driver license reforms and provides much-needed empirical evidence to a controversial policy debate.

This paper provides novel evidence of the moral hazard problem in environmental insurance by investigating the effect of environmental liability insurance (ELI) on firms' environmental performance. Using the staggered adoption of ELI policies in China as a quasi-natural experiment, we employ a difference-in-differences setup based on a comprehensive firm-level data set. We find that the adoption of ELI policies significantly reduces firms' efforts in treating water pollution. The negative estimate indicates a moral hazard problem and is the opposite of the positive estimates found mainly in studies that focus on US firms. We further find that the negative effect is lessened for firms in strictly supervised regions and for firms with strong environmental awareness. This paper is one of the first to evaluate environmental insurance in developing economies and provides novel evidence on moral hazard in environmental liability insurance markets.

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 wealth to a life annuity, a liquid investment and flexible long-term care insurance, around 75% of our sample of 1008 pre-retirees choose some long-term care cover. Study participants treat long-term care income insurance as a complement to informal care from their families. Females who expect to rely exclusively on extensive care from family members prefer more cover than similar males. We also find that if long-term care income insurance were available, some healthier seniors would purchase additional longevity insurance, using liquid funds otherwise set aside to self-insure long-term care risk.

I formulate expected-utility-maximizing models for health insurance with a single optimal coinsurance (C*) and (separately) a single optimal deductible (D*). While so-doing, I formalize Nyman's challenge to standard welfare-loss models, clarifying when and by how much this alters unadjusted models. Using MEPS-calibrated lognormal distributions and incorporating skewness and kurtosis measures of financial risk, I show how C* shifts as various economic parameters change. For reasonable parameter values, C* < 0.1, much lower than variance-only estimates would conclude. Omitting higher-order risk parameters importantly understates risk and hence understates optimal insurance coverage. I separately develop methods to determine D*, showing that it is approximately a fixed percentage of income that falls as the distribution of financial risks rise. This finding contrasts with existing US public policy regarding high-deductible health plans, which employ fixed deductibles, independent of income.