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Abstract: Abstract We analyze the preferences of 1180 German consumers for investment guarantees in financial products by means of choice-based conjoint and latent class analysis. Based on the segment-level partworth utility profiles, we then identify the most important investment guarantee features, analyze consumer demand in a realistic market setting, and test whether individual purchasing behavior can be explained by socioeconomic characteristics. Our results show that two buyer and two nonbuyer segments exist. Although their willingness to buy varies significantly, we document only a small degree of heterogeneity with respect to the individual guarantee attributes and levels. Across the sample, the guarantee period is most important, followed by the volatility of the underlying fund, and the up-front premium. Finally, we illustrate that particularly those socioeconomic characteristics with an impact on individuals’ financial situation are promising predictors of their willingness to purchase investment guarantees. PubDate: 2022-05-03
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Abstract: Abstract Long-term care (LTC) is not only a concern for elderly individuals but also for their adult children, as the latter often provide financial support and informal care to their elderly dependents. Adult children may therefore have strong incentives to have their parents purchase LTC insurance. Using data from a 2019 Swiss survey, this article first identifies a set of variables, including self-reported interest about LTC insurance, whether elderly parents live with their children and if the latter have provided informal help with personal care, which help predict the interest of adult children in having their parents covered against LTC risk. Second, it investigates the main characteristics of children’s motives for influencing their parents to purchase LTC insurance, which are classified as either altruistic, i.e. related to parental well-being, or self-interested, i.e. related to the child’s well-being. The results offer valuable insights for both policymakers and insurers when designing public LTC policies and LTC insurance products. PubDate: 2022-05-03
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Abstract: Abstract The General Data Protection Regulation (GDPR) establishes a right for individuals to get access to information about automated decision-making based on their personal data. However, the application of this right comes with caveats. This paper investigates how European insurance companies have navigated these obstacles. By recruiting volunteering insurance customers, requests for information about how insurance premiums are set were sent to 26 insurance companies in Denmark, Finland, The Netherlands, Poland and Sweden. Findings illustrate the practice of responding to GDPR information requests and the paper identifies possible explanations for shortcomings and omissions in the responses. The paper also adds to existing research by showing how the wordings in the different language versions of the GDPR could lead to different interpretations. Finally, the paper discusses what can reasonably be expected from explanations in consumer oriented information. PubDate: 2022-05-03
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Abstract: Abstract We investigate the impact of new financial and economic determinants on life insurance demand for 29 OECD countries for the period 2005–2017 while controlling for a set of widely used socio-demographic and economic characteristics. Based on a panel smooth transition regression model, we find a regime-switching effect characterising the impact of bank concentration and interest rate on the size of the life insurance market, in light of the old-age dependency ratio as the threshold variable. We also show that life insurance development is boosted in countries with high scores for investment freedom and with high levels of foreign direct investment rates, regardless of the level of the old-age dependency ratio. The impact of GDP per capita on the demand for life insurance products is positive and statistically significant, regardless of the level of the threshold variable. PubDate: 2022-04-29
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Abstract: Risk aversion kicks in: the less risk averse the insured, the larger the deviation from full insurance, all else being equal. The original version of this paper was inadvertently published with an incorrect word in one sentence on page 255. The original article has been corrected. We apologise for any inconvenience caused to our readers. PubDate: 2022-04-01
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Abstract: Abstract The purpose of this research is to examine whether insurers have improved their economic performance through efficiency as a reaction to the prolonged period of low interest rates. The results of an analysis of 22 years of data, using a two-stage data envelopment analysis approach (DEA), show that there is an inverse relationship between efficiency and interest rate. The non-life insurance group had a superior level of efficiency compared with that of the life insurance group. It seems that life insurance companies, to some extent, transferred their inefficiency to customers to maintain their solvency. Additionally, this research shows that companies with substantial market power and bancassurance exceeded the performance of the rest of the industry. PubDate: 2022-04-01
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Abstract: Abstract This paper examines the effects of the regulatory changes implemented in the Mexican insurance sector in adjustment to the international regulations of Solvency II imposed by the International Association of Insurance Supervisors. The effect of regulatory changes on the risk and performance levels of foreign entities was analysed and compared with their domestic counterparts. Using a difference-in-difference estimator, significant evidence that foreign insurance companies enhanced their default risk after complying with the law was found. The findings showed that the stability levels of domestic entities were negatively affected. No effect on the performance level for both types of entities was found. This study provides evidence that foreign entities were already prepared for the change in regulation, as opposed to domestic ones, due to their association with their foreign holdings. PubDate: 2022-04-01
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Abstract: Abstract This paper investigates the effects of directors and officers (D&O) liability insurance on default risk. Using unique panel data of non-financial listed firms in Taiwan from 2010 to 2017, the empirical results indicate that D&O insurance exerts a significantly positive influence on firms' expected default frequency (EDF), controlling for the endogeneity of D&O insurance coverage and fixed effects. Further analyses reveal that such an effect exists particularly among firms with a high D&O insurance coverage ratio. Firms with D&O insurance have higher default risk than those without. Our findings differ from those in the existing literature by showing that D&O insurance coverage reflects firms' EDF and by capturing more insight on firms' EDF (market value, stock return volatility and firm asset volatility). The evidence indicates that D&O insurance may serve as a real-time, publicly observable signal of default risk for insurers and investors, enabling better contracting and risk management. PubDate: 2022-04-01
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Abstract: Abstract We empirically examine the effect of local religious beliefs on the risk-taking behaviour of U.S. life insurers headquartered in that region. We distinguish between insurers that predominantly write annuities and insurers that predominantly write life insurance policies; the annuity business is relatively riskier than writing life insurance. Insurers headquartered in high-Catholic or low-Protestant areas are more likely to be annuity writers. Annuity writers located in high-Catholic or low-Protestant areas invest more in risky assets and exhibit higher investment return volatilities, as well as a higher volatility of their return on assets. Overall, our results suggest that local culture has significant influences on life insurers’ behaviour. PubDate: 2022-04-01
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Abstract: Abstract Based on a data set of 91 papers and 22 industry studies, we analyse the impact of artificial intelligence on the insurance sector using Porter’s (1985) value chain and Berliner’s (1982) insurability criteria. Additionally, we present future research directions, from both the academic and practitioner points of view. The results illustrate that both cost efficiencies and new revenue streams can be realised, as the insurance business model will shift from loss compensation to loss prediction and prevention. Moreover, we identify two possible developments with respect to the insurability of risks. The first is that the application of artificial intelligence by insurance companies might allow for a more accurate prediction of loss probabilities, thus reducing one of the industry’s most inherent problems, namely asymmetric information. The second development is that artificial intelligence might change the risk landscape significantly by transforming some risks from low-severity/high-frequency to high-severity/low-frequency. This requires insurance companies to rethink traditional insurance coverage and design adequate insurance products. PubDate: 2022-04-01
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Abstract: Abstract We empirically investigate the trade-offs between three strategic goals of the insurance business: growth, profitability and safety. Analysing 1988 European insurance companies over 11 years with simultaneous equation models, we show that moderate firm growth is associated with high profitability, but extremely high growth is associated with low profitability (i.e. an inverse non-linear relationship). Our results show that less profitable insurers are taking more risks. Insurers that prioritise profit over growth in early periods are more likely to reach the ideal state of ‘profitable growth’ in later periods. Our results emphasise the need to jointly consider growth, profitability and safety in a multi-period context when evaluating firm performance. PubDate: 2022-04-01
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Abstract: Abstract This study investigates the potential effect of economic policy uncertainty, geopolitical risk, non-oil output, inflation and corporate governance features on insurance companies in Saudi Arabia using quarterly data over the period 2013–2019. More specifically, we apply estimation method panel autoregressive distributed lag (ARDL) to model the long- and short-term relationships. Our empirical results reveal negative short-term effects of geopolitical risk and uncertainty about government economic policy on insurance demand. However, the effect of the latter is not permanent. Our results support the assumed ‘demand following theory’ in the long-term, which, in turn, is an indication of the fact that the demand for insurance policies is dependent on economic growth and more susceptible to inflation. Our evidence shows that corporate governance has a significant effect on insurance demand in the long term, whereas a Shariah board has no significant impact. PubDate: 2022-04-01
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Abstract: Abstract Whether agricultural insurance promotes primary industry production has been debated for decades. Our paper studies this question based on the agricultural insurance premium subsidy policy in China. We use this quasi-experiment to conduct difference-in-differences and event study estimations. We find that the development of agricultural insurance, induced by premium subsidies, significantly promotes primary industry production; per person, it increases by CNY 1430 in subsidised provinces compared to unsubsidised provinces. We use county-level data to address the aggregation problem in our province-level analysis and obtain the same conclusion. We also find that agricultural insurance primarily affects agriculture and husbandry among the four subindustries of the primary industry. PubDate: 2022-04-01
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Abstract: Abstract Using a quasi-natural experiment, we examine how demutualisation affects demutualised insurers’ capital, organisational flexibility and alignment of managerial incentives post-demutualisation. First, our results show demutualised insurers have faster surplus growth than matching insurers post-demutualisation. However, the surplus growth differs between demutualised insurers with and without surplus notes. Specifically, the evidence shows that demutualised insurers with surplus notes experience long-term surplus growth, while demutualised insurers without surplus notes experience short-term surplus increases. Second, we find that increased organisational flexibility facilitates merger and acquisition activities for demutualised insurers and helps them to pursue growth and diversification. We find that 51% of demutualised stock insurers become targets in the conversion year. Finally, we find that demutualised insurers have lower underwriting expenses and underwrite more in commercial lines post-demutualisation. Overall, our evidence shows that demutualisation has a positive impact on surplus growth, organisational flexibility and the alignment between managerial incentives and owners' interests. PubDate: 2022-04-01
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Abstract: Abstract Diversification plays a pivotal role under the risk-based capital regime of Solvency II. The new rules reward large and well-diversified insurance companies with relatively low capital requirements compared to those of small and specialised nature. To enhance diversification, insurance companies can adjust their strategy by engaging in mergers and acquisitions or new market entries. Alternatively, insurers can accept higher Solvency II capital requirements, displaying a competitive disadvantage and impeding future growth. This research proposes a Solvency II portfolio swap as a new diversification solution that allows small and specialised insurance companies to improve their diversification, and thus, mitigate their diversification disadvantage. The effect of such swaps is demonstrated through the use of two hypothetical insurance companies by swapping 20% of their portfolio over four different scenarios. The swap allowed for a 6% reduction in the Solvency Capital Requirement (SCR) and a maximum increase of the SCR coverage ratio of 17%. With Solvency II posited to stimulate further mergers and acquisitions within the European insurance market, this paper offers an alternative method for insurers to diversify their portfolio. Furthermore, it is suggested that the proposed alternative risk transfer method may improve insurance market competition within the EU by facilitating small and specialised insurers’ competitiveness. PubDate: 2022-03-28
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Abstract: Abstract Using panel data from the 2013, 2015 and 2017 China Household Finance Survey (CHFS) and the digital finance index developed by Peking University, this study examines the impact of digital finance on household insurance purchases and explores its mechanisms. The results indicate that digital finance can promote household insurance purchases by increasing residents’ financial literacy and their accessibility to internet financial services. A heterogeneity analysis reveals that digital finance has a more positive effect on the insurance purchases of households with fewer assets, lower income and located in less developed and rural areas. Regarding the type of insurance, digital finance enhances the purchase of property and life rather than health insurance. The regression results of household insurance purchases on the three dimensions of digital finance show that the breadth of coverage and depth of usage of digital finance have more significant impacts on household insurance purchases than digitalisation level. Robustness checks with different measures and samples, also addressing potential endogeneity using the instrumental variable approach, show the reliability of our findings. PubDate: 2022-03-23
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Abstract: Abstract Cybercrime is estimated to have cost the global economy just under USD 1 trillion in 2020, indicating an increase of more than 50% since 2018. With the average cyber insurance claim rising from USD 145,000 in 2019 to USD 359,000 in 2020, there is a growing necessity for better cyber information sources, standardised databases, mandatory reporting and public awareness. This research analyses the extant academic and industry literature on cybersecurity and cyber risk management with a particular focus on data availability. From a preliminary search resulting in 5219 cyber peer-reviewed studies, the application of the systematic methodology resulted in 79 unique datasets. We posit that the lack of available data on cyber risk poses a serious problem for stakeholders seeking to tackle this issue. In particular, we identify a lacuna in open databases that undermine collective endeavours to better manage this set of risks. The resulting data evaluation and categorisation will support cybersecurity researchers and the insurance industry in their efforts to comprehend, metricise and manage cyber risks. PubDate: 2022-02-17 DOI: 10.1057/s41288-022-00266-6
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Abstract: Abstract Customer satisfaction management is increasing in importance within the insurance industry. In particular, to define a customer-oriented strategy, installing digital applications based on technologies, e.g. including artificial intelligence or cloud computing, ranks among the major strategic challenges. Against this background, the aim of this paper is to take an integrated perspective on managing customer satisfaction and the digital transformation. Towards this end, we identify and assess a set of digital applications, as a result of a comprehensive review of 106 academic papers and publications of the industry and supervisory authorities. We illustrate the opportunities to increase customer satisfaction and emphasise their impact on insurers at four major customer touch points: contract conclusion, contract modifications, the event of damage and further contacts. Our results are strategic measures to strengthen the position for sales and marketing, to simplify standard processes and to increase efficiency and interaction with the customer. PubDate: 2022-02-07 DOI: 10.1057/s41288-021-00257-z
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Abstract: Abstract Over the last decade, digitisation and individualisation have fostered the development of on-demand services in many industries. In the insurance sector, technological progress brings new possibilities on how risks can be insured. This paper studies on-demand insurance and thereby takes three perspectives. First, we define on-demand insurance and study the current market landscape of offerings, leading to a characterisation of the phenomenon. Second, we analyse the on-demand insurance business model, discuss how value is created, and develop a taxonomy of the dimensions among business model components. Third, we describe the awareness and interest of potential customers in Switzerland using novel data recorded from a recent consumer survey. Using the results from the market study, business model analysis, and customer survey, we discuss the (future) role of on-demand insurance, shedding light on the ongoing business model transformation in the insurance industry. We conclude that insurtech companies address emerging customer needs and that traditional incumbent insurers must innovate to keep their prominent role at the customer interface. While novelty and complementarity of on-demand insurance solutions bring value today, we expect that efficiency and customer retention will add more value in the future, especially once technology has matured and business model components are well-aligned. PubDate: 2022-02-07 DOI: 10.1057/s41288-022-00265-7
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Abstract: Abstract While some consider open insurance to be a buzzword with more hype than substance, the underlying trend of open finance stimulates insurers to use digital technology to exchange data with third parties to realise process efficiencies and develop new products and channels. Based on a literature review and 30 interviews with industry experts in Europe, we define open insurance, identify its key drivers, and discuss the dimensions and performance impact of open insurance strategy. The combined insights can help executives develop a better understanding of open insurance and formulate an open insurance strategy that provides performance benefits to them, customers, and third parties. PubDate: 2022-02-02 DOI: 10.1057/s41288-022-00264-8
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