Journal of Risk and Insurance最新文献

Subsidized insurance against extreme weather events improves affordability among households in at-risk areas but it can weaken the risk signal via property prices. Leveraging a granular data set of all property transactions and flood events in England, we study the effects of a reinsurance scheme that lowers insurance premiums for at-risk properties. We document that the introduction of this scheme increases prices and transaction volumes of flood-prone properties. This fully offsets the negative direct effects of flooding on property prices, with high-income areas and high-value properties benefiting relatively more. Our findings speak to the debate on climate adaptation policies and their consequences for wealth distribution.

Extant research holds that digital sales channels advance competition and service or goods availability but rarely details the attendant information asymmetry. Leveraging a large unique dataset, this study examines a specific case in which consumers have a choice between offline and digital channels for insurance purchases. We find that digital channels screen in consumers with lower unobserved risk. For term life, endowment and disease insurance products, the average risks of the policies purchased through digital channels were significantly lower than those purchased offline after controlling for all observed risk characteristics. This risk screening effect mainly comes from the inclusion of new low-risk enrollees. As a consequence, digital channels exhibit lower information asymmetry and greater profitability compared to offline channels.

Crop yields are crucial for research on agricultural risk and productivity but are typically only available at highly aggregated levels. Yield data at more granular levels of observation have the potential to enhance econometric identification and improve statistical power but are typically inaccessible. Crop insurance contracts offered via the US Federal Crop Insurance Program (FCIP) are priced, in part, based on past yields of the farm meaning year-to-year variation in premium rates has the potential to provide insight into how yields vary over time. This paper introduces methods to use observed FCIP rating parameters to calibrate yields for insurance transactions lacking such data. These methods are validated with 148,243 farm-level observations from Kansas for which yields are known. The calibrated yields are applied empirically to examine the impact of asymmetric information in the FCIP via choice of insurance unit structure and the extent to which legislative changes mitigated this effect.

We identify the effect of public guarantees on market discipline by exploiting the variation in US state guarantees of property–casualty insurer obligations. We find that guaranty funds have little effect on the risk-sensitivity of insurer financing overall, with the exception of rating changes at the key threshold level of A.M. Best's A− rating. For insurers rated A− before a downgrade, we find that premium growth in business not covered by state guarantees falls in relation to growth in business covered by state guarantees. We estimate this difference in growth to be as high as 14.9% for commercial insurers.

The old-age security motive for fertility implies that children are substitutes for parents' old-age insurance. However, demographic dynamics and the evolution of social welfare schemes may challenge this notion. Meanwhile, as population aging is placing heavy pressure on the social security systems, private insurance has become a crucial supplement for hedging risks. In light of the present trends, this research examines the impact of the number of children on private insurance adoption among older parents in China. This research exploits the “Later, Longer, Fewer” campaign to instrument variations in the number of children. Instrumental variable estimates reveal that the likelihood of older parents having private insurance increases with the number of children they have. The positive effect is more pronounced among older adults, who are less reliant on children and have more access to alternative resources. Further analyses indicate that adverse selection and information channels are potential mechanisms.

In this paper, we examine the role of usage-based auto insurance on customers' decisions to change their insurance coverage at the renewal. Using a sample of 135,540 customers, we study whether usage-based insurance (UBI) can facilitate the upselling and cross-selling efforts of the firm, possibly leading to higher coverage choices and additional insurance product purchases. Our results suggest that UBI customers are more likely to change their coverage choice than non-UBI customers at first (but not second) renewal. Both price discounts and the information provided by UBI affect the customers' coverage changes. Among UBI customers, those who get higher UBI discounts are more likely to both increase their insurance coverage (upselling) and add the comprehensive coverage option (cross-selling), which is not directly related to driving behavior at the time of first (annual) renewal. Moreover, customers who have received more negative feedback (daily hard brakes) are more likely to increase their insurance coverage.

We develop a dynamic investment model with loan guarantees wherein insurers face information disadvantages and learn about borrower quality. Borrowers signal their qualities through investment timing, which is characterized by the investment threshold and elapsed time. We derive the conditions for separating or pooling equilibria. We show that the separating investment threshold is constant and determined mainly by the maximum threshold preventing mimicry. If project risk is higher (lower) than the market growth rate, the pooling investment threshold declines (increases) with elapsed time, and learning enhances (reduces) the willingness of high-quality borrowers to wait. Learning alleviates adverse selection and reduces guarantee costs. These effects are more pronounced with a greater uncertainty of the insurer on borrower quality. We reveal dual effects of waiting. The worse the market prospect, the higher the value of waiting in pooling outcomes. Fee-for-guarantee swaps are superior to equity-for-guarantee swaps in environments with marked information asymmetry.