Journal of Risk and Insurance最新文献

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.

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.

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.

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.

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 responses to increased coverage. Supplementary insurance increases the insurers' incentive to lower disability risks, but in our setting it also creates an incentive for the insurers to facilitate partial work resumption of disabled workers who have earnings capacity. Using firm- and time-fixed effects models on the absence and employment rates, we find that insurer effort counteracts workers' moral hazard.

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 implies optimal conditions for observing large fractions of optimal choices, we observe widespread adoption of non-welfare-maximizing plans, with at least 36% of the population winding up with suboptimal insurance plans. In a hypothetical-choice survey experimental setting, we estimate the treatment effects of increasing transparency through information provision and restricting choice on choice optimality. We find that decision quality cannot be improved meaningfully by our interventions and that nonoptimal choice is economically relevant, as it accounts for an increase of approximately 9.4% in total annual cost.

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 the finance literature and that for risk sharing in the insurance literature. Building on the most common form of reinsurance—pro rata treaties, we propose a peer-to-peer (P2P) network for risk sharing. Assuming independent multivariate losses over time, we find that the optimal risk-sharing allocation exhibits a three-component structure with the long-term limit and two correction terms. This allows us to show convergence of the risk-sharing solution and the ratios of long-term reserves. Furthermore, we study the impact of actuarial fairness on various risk-sharing strategies and their long-term limits.