Journal of Risk and Insurance最新文献

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.

We theoretically investigate the equilibria and efficiencies of public and market insurance institutions within a framework where loss probabilities are interdependently influenced by the efforts of individuals and institutions (firms). We highlight the multilateral nature of interdependency, which exists within individuals, within firms, and between them. Our analysis reveals that both public and market institutions fall short of achieving first-best efficiency, and that the relative efficiencies between the two are indeterminate, due to the externalities. Regarding effort levels, we find that under the public institution, individual efforts are lower while institutional efforts are higher compared with the social optimum and the market institution. We also find that individual and/or institutional efforts are lower under the market institution than the social optimum, with both efforts lower under severe externalities.

Low income households in agrarian developing economies face considerable livelihood risks, which have negative impacts on welfare. A growing literature focuses on internal constraints on development, which can negatively affect saving and investment behavior. Here I propose that internal constraints may also hinder risk management. Specifically, I present a theoretical model that explores how fairness preferences may create an internal constraint on risk sharing, particularly in a context of wealth inequality, and thereby also affect demand for formal insurance. To test this theory, I utilize a lab experiment, conducted in Ghana, to investigate the impact of wealth inequality on utilization of risk-management tools, interpersonal risk sharing and formal insurance, and explore how fairness preferences may mediate this effect. I find that inequality reduces risk sharing and increases demand for insurance. Moreover, I find suggestive evidence that fairness preferences create an internal constraint on risk sharing under inequality.

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.