Journal of Risk and Insurance最新文献

We perform a textual analysis of insurers' climate risk disclosures and construct a climate change risk management quality index. Our index captures to what extent insurers identify, manage, and adjust their business model to climate change risk. We find that natural disasters in an insurer's home state lead to an increase in climate change risk management quality. The effect of natural disasters in an insurer's geographic markets on climate change risk management seems to be less pronounced. Overall, these results are consistent with salience theories of choice.

We analyze individual annuitization decisions at retirement in an environment with mandatory participation in a funded pension pillar and low average annuity price. Using administrative data from a large Swiss insurance company over the period 2011–2015, we document that, even in this favorable environment, only 42.7% of the retirees fully annuitize, against 45% taking full lump sum. We show that individual annuitization decisions strongly respond to financial incentives, measured by the Money Worth Ratio, and to the tax rates on annuity and lump-sum payments. Lump-sum payments are more common among French- and Italian-speaking individuals. Using Survey of Health, Ageing and Retirement in Europe data, we show that French- and Italian-speaking Swiss are more likely to leave inheritance—thus suggesting that preferences for bequests may affect annuitization decisions. Finally, we provide evidence of asymmetric information, using the unused observable test, to show that individuals living in high mortality municipalities are less likely to annuitize and more likely to cash out their pension wealth.

This study examines the impact of enterprise risk management (ERM) programs on corporate tax planning. ERM is a holistic approach to managing an enterprise's entire portfolio of risks. We hand-collect data on ERM adoption for a sample of Standard & Poor's 500 firms from 1993 to 2016. We empirically document that firms with ERM programs have lower cash effective tax rates than firms without ERM. Additionally, we find that the relation between ERM and tax avoidance is stronger among firms with more business segments. Finally, our results suggest ERM adoption offsets an increase in opacity and tax uncertainty typically associated with tax avoidance strategies. Overall, we provide evidence that ERM allows firms to exploit tax avoidance opportunities through enhanced coordination and communication.

Centralized insurance can be found in both the private and public sectors. This paper provides a microeconomic study of the risk-sharing mechanisms in these markets, where multiple policyholders interact with a centralized monopolistic insurer. With minimal assumptions on the risk preferences of the market participants, we characterize Pareto optimality in terms of the agents' risk positions and their assessment of the likelihoods associated with their loss tail events. We relate Pareto efficiency in this market to a naturally associated cooperative game. Based on our theoretical results, we then consider a model of flood insurance coverage via an illustrative example. The lessons drawn from our theoretical results and this example lead to important policy implications for the existing National Flood Insurance Program in the United States.

Premium subsidies can be used to address low demand for natural hazard insurance when it is partly caused by governmental disaster relief payments. We analyze how the introduction of ex ante premium subsidies affects the frost insurance demand of German winegrowers after the government changed insurance regimes to avoid ex post disaster relief payments. We find that the implementation of a premium subsidy in an immature market with low levels of participation, presumably caused by strong anticipation of disaster relief, is effective in increasing overall frost insurance demand. Receiving disaster relief payments 3 years before the introduction of the subsidy seems to make farmers more responsive toward the premium subsidy.

This paper incorporates mortality shocks in the scenarios for future mortality rates produced by a stochastic multi-population mortality model. Hereto, the proposed model combines a decreasing stochastic mortality trend with a mechanism that switches between regimes of low and high volatility. During the high volatility regimes, mortality shocks occur that last from one to several years and temporarily impact the mortality rates before returning to the overall mortality trend. Furthermore, we account for the age-specific impact of these mortality shocks on mortality rates. Actuaries and risk managers can tailor this scenario generator to their specific needs, risk management objectives, or supervisory requirements. The generated scenarios allow (re)insurers, policymakers, or actuaries to evaluate the effects of different catastrophe risk scenarios on, for example, the calculation of solvency capital requirements.

We study the role of insurance in improving household and community disaster recovery. Our analysis harnesses both a unique survey of residents impacted by four land-falling hurricanes in the United States and foot traffic data on visits to local businesses. Households sort into two groups when it comes to financing recovery: those primarily using property insurance and those largely uninsured, instead relying more on friends and family. Insurance improves households' ability to participate in the local economy. Postflood visitation rates to many local businesses increase with greater flood insurance take-up rates. Expanded participation in the local economy is consistent with insurance reducing financial constraints; indeed, insured households are less likely to report experiencing high financial burdens in both the short and longer-run postdisaster and are less likely to have unmet funding needs. Despite this, motivating the purchase of disaster insurance remains challenging, particularly among low-income households who perceive insurance as less useful.

Despite the growing demand for long-term care (LTC), the uptake of private LTC insurance (LTCI) is low and even declining in the United States. One reason is the complexity of LTCI decisions. Researchers have therefore suggested to support decision-making abilities. This paper shows, however, that such support would not unambiguously enhance functioning of the LTCI market. We analyze whether selection arises from two correlated but different decision-making abilities at old age, education and numeracy, and interactions thereof with private information. Using historical data from the Health and Retirement Survey we find that education generates adverse selection, which is only partially offset by advantageous selection due to numeracy. In addition, individuals with greater decision-making abilities make better LTCI choices, amplifying selection by education and numeracy. This points at a trade-off between decision simplicity and selection in insurance markets and suggests other steps are needed to enhance the performance of private LTCI markets.