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- Investment in big data analytics and loss reserve accuracy: evidence from
the U.S. property-liability insurance industry-
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Abstract: Abstract This study explores the impact of big data analytics investment on loss reserve accuracy in the U.S. property-liability insurance industry. Utilising a dataset of 1243 insurers from 2002 to 2016, we find a significant association between higher investment in big data analytics and more accurate loss reserve estimates. Our analysis distinguishes between over-reserving and under-reserving behaviours, revealing that big data analytics contributes to the reduction of both. The study employs entropy balancing, internal instrumental variable estimation and errors-in-variables regressions to enhance the robustness of the findings. This research not only fills a gap in the academic literature but also provides practical implications for enhancing the precision of loss reserve estimates through technological investments.
PubDate: 2024-08-02
- Actuarial premium calculation for beekeeping insurance in Turkiye
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Abstract: Abstract Turkiye is a country with significant production potential in the world beekeeping sector, being among the top four countries worldwide. In this study, aggregate claims based on data on the hive insurance policies of the companies operating in the beekeeping sector in Turkiye, covering the years 2014–2021, was modelled using a collective risk model and premium calculations for aggregate claims were determined according to different calculation principles. Cluster analysis was conducted to calculate the premiums, and similarities between provinces were revealed based on claims ratios. The results of the study revealed that the highest premiums are found in Eastern Anatolia while the lowest premiums are found in Central Anatolia. In the case of Muğla, Ordu and Hakkâri provinces, which differed in the cluster analysis, the highest premiums were found for Hakkâri province.
PubDate: 2024-07-29
- The impact of health-promoting efforts by older individuals on the design
of long-term care insurance: the application of IoT technology-
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Abstract: Abstract ‘Internet of Things’ (IoT) devices provide insurance companies with real-time data about insured assets or individuals for more precise risk assessment and underwriting. This study examines the potential premium discounts in long-term care insurance when health and lifestyle habits are monitored as risk factors by IoT devices. Our findings reveal that while both regular exercise and good sleep quality reduce the probability of long-term care needs, regular health checks do not. We further construct a heath transition model and identify premium discounts based on data collected by IoT technologies. Using actual panel data in Taiwan, our research suggests that individuals aged 55 years old may be eligible for premium discounts of more than 10%, implying that IoT technologies enable insurance companies to provide customised insurance policies and pricing structures tailored to individual risk profiles and behaviour. Our results contribute to the InsurTech design of long-term care insurance products and provide suggestions for insurance companies and financial authorities.
PubDate: 2024-07-10
- Internalising externality: the impact of environmental pollution liability
insurance on the green transformation of Chinese heavy-polluting firms-
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Abstract: Abstract Environmental protection and green development have become a common goal for countries and organisations worldwide, increasing pressure on firms to implement green transformation (GT) strategies. Environmental pollution liability insurance (EPLI) is a powerful risk management tool that transfers pollution liability risks outside the firm. This study examines the impact of EPLI coverage on firms’ GT progress using data from Chinese heavy-polluting firms. The empirical results show that EPLI-covered firms are likely to promote GT, with the effect persisting over time. The study then discusses the potential mechanisms to explain this positive impact and finds that EPLI imposes additional compliance costs on firms. However, these additional compliance costs do not exacerbate firms’ financial constraints because EPLI coverage improves the availability of external financing. EPLI corverage also improves firms' risk management practices. Finally, the magnitude of EPLI’s impact depends on firms’ bargaining power in their relationship with the local government.
PubDate: 2024-07-06
- Discretionary decisions in capital requirements under Solvency II
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Abstract: Abstract European insurers are allowed to make discretionary decisions in the calculation of Solvency II capital requirements. These choices include the design of risk models (ranging from a standard formula to a full internal model) and the use of long-term guarantees measures. This article examines the situation of insurers that utilize the discretionary scope regarding capital requirements for market risks. In a first step of our analysis, we assess the risk profiles of 49 stock insurers using daily market data. In a second step, we exploit hand-collected Solvency II data for the years 2016 to 2020. We find that long-term guarantees measures substantially influence the reported solvency ratios. The measures are chosen particularly by less solvent insurers and those with high interest rate and sovereign credit risk sensitivities. Internal models are used more frequently by large insurers and especially for market risks for which they have already found adequate immunization strategies.
PubDate: 2024-07-04
- The effects of selection and moral hazard in additional health insurance
in a universal healthcare system: evidence from Taiwan-
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Abstract: Abstract In this study, we investigate the effect of both voluntary private health insurance and compulsory social health insurance on the utilization of medical care services under Taiwan’s universal mandatory National Health Insurance scheme. Using data for all inpatient services rendered by a large tertiary medical center in Taiwan, we found evidence of advantageous selection into private health insurance. After controlling for this selection effect, we found substantial moral hazard in both voluntary and mandatory additional health insurance. We also found heterogeneity in the moral hazard effect, which varied depending on the kind of medical care utilized and the kinds of insurance benefits available to patient. This hospital-based study suggests that it is unlikely that additional private health insurance would reduce government spending on healthcare for the patients at our medical center. It might in fact contribute to inequality in healthcare among our patients of different social economic backgrounds as well as have some fiscal spillover effect on the National Health Insurance program, if similar of studies of the other medical centers across Taiwan were to corroborate our findings.
PubDate: 2024-07-03
- Technology investment and insurer efficiency
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Abstract: Abstract We examine the role of technology expense and asset data items with insurer efficiency. We show that insurers increasing investment in technology classified as expenses, experience increases in allocative efficiency the following year. Insurers that increase expenditures classified as technology assets realize decreases in cost and allocative efficiency the next year. In addition, we find that expensed technology contains different information than those classified as assets with the association of expenditures in assets with efficiency dominating expensed technology. Our findings support that expensed technology items are for innovative applications and technology assets are used to support general business operations. We also explore the possibility that the reduction of commissions to agents is a mediator through which technology expenses affect efficiency, but do not find support for this mediation.
PubDate: 2024-07-02
- Microinsurance research: status quo and future research directions
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PubDate: 2024-07-01
- Assessing U.S. insurance firms' climate change impact and response
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Abstract: Abstract Climate change poses a serious risk for insurance firms, threatening their sustainability from numerous channels of impact. Assessing this impact, however, is not straightforward. We assess and distinguish between insurance firms by impact and response to climate change and relate the firms’ financial characteristics to climate risk exposure. A text mining approach using climate change sub-dictionaries on risk exposure, impact, and response, and a nested feature extraction method is developed to define and classify insurance firms’ adaptation levels to climate change. These features reveal that casualty insurance firms are most susceptible to acute climate risk, while life insurance firms are more prone to chronic climate risk. Insurance firms with the highest exposure to climate change present a high level of adaptation to pecuniary impact of the risk. Nevertheless, many firms with exposure remain inadequately prepared for climate change and firms with high exposure show relatively higher financial weakness.
PubDate: 2024-07-01
- Technology investments and firm performance under the wave of InsurTech
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Abstract: Abstract This study explores how the technology investments of a sample of U.S. property-liability insurers affected their performance during the InsurTech wave. The critical question is whether insurers' InsurTech-oriented investments strengthen their competitive advantages, resulting in improved firm performance. This study reveals that insurers' InsurTech-oriented investments have a significant detrimental influence on their short-term performance. Intriguingly, empirical findings indicate that insurers' InsurTech-oriented investments have a strong positive relationship with long-term performance, suggesting that the notion of time lag and cumulative impacts is justified. The study provides new insight into the effect insurers' InsurTech-oriented investments have on their performance.
PubDate: 2024-07-01
- Economic policy uncertainty and directors and officers liability
insurance: a perspective on capital market pressures-
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Abstract: Abstract This study investigates the effects of economic policy uncertainty (EPU) on corporate purchases of directors and officers liability insurance from the perspective of capital market pressures. Using data on A-share Chinese listed firms from 2010 to 2021, our theoretical analysis and empirical tests reveal that higher levels of EPU increase purchases. The theoretical analysis and mediating tests reveal that capital market pressures play a mediating role in the relationship between EPU and purchases. This study also finds that the indirect ways in which EPU increases purchases consider the need for firms to mitigate litigation risks and take advantage of insurance governance. The heterogeneous analysis and tests reveal that EPU increases purchases more significantly in firms that have higher managerial agency costs, have lower corporate transparency, and are in industries with higher competition. The findings are significant for improving the risk management system in China’s capital markets.
PubDate: 2024-07-01
- Why banks insure structured commodity trade finance risk: evidence from a
worldwide survey-
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Abstract: Abstract We identify major drivers of the demand for credit insurance, using a worldwide survey among banking executives in the structured commodity trade finance business. Our results show that a bank’s propensity to purchase insurance increases in its experience and expertise with the product, the impact of insurance coverage on its balance sheet, the risk of the underlying transaction, as well as the intensity of broker relationships. Other factors, such as the size of the commodity trade finance portfolio, the competitiveness of the insurance price, and the risks arising from commodity price volatility, seem to be of lesser relevance.
PubDate: 2024-07-01
- Greenfield foreign direct investments and insurance market
diversification: a cross-country analysis-
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Abstract: Abstract Foreign direct investments (FDIs) influence insurance markets directly, through foreign insurers’ participation in domestic markets, and indirectly, through cross-sectoral spillover effects. This article focuses on the indirect effects and examines the relationship between greenfield FDIs and diversification in European insurance markets. Using panel data of 28 countries for the period 2004–2019, we find that greenfield FDIs induce greater diversification of insurance markets. Our results suggest a non-linear relationship and potential mediating effects of financial development on the FDI–insurance relationship. Robustness tests using different measures of market diversification, model specifications and averaging of the data show consistent results.
PubDate: 2024-07-01
- The effect of corporate risk management on cyber risk mitigation: Evidence
from the insurance industry-
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Abstract: Abstract We examine how corporate risk management can be used to address a firm’s vulnerability to cyber risk. We use a large, novel dataset on cyber risk and corporate risk management to analyse US insurers’ cyber loss events during the period of 2000–2021. Our analysis includes information on whether insurers have implemented an enterprise risk management (ERM) programme and whether they report applying cyber risk management (CRM). The results illustrate that the implementation of CRM measures may have no significant effect on cyber risk mitigation. However, we determine that the likelihood (frequency) of a cyber loss event decreases by 3.9% (6.8%) as ERM programmes mature year on year. We also find that an insurer can benefit from implementing both CRM and ERM through a lowered event likelihood (frequency) of 3.8 percentage points on average (3.7 percentage points) per year compared to solely implementing an ERM programme.
PubDate: 2024-05-22
DOI: 10.1057/s41288-024-00326-z
- The effect of microinsurance on the financial resilience of low-income
households in Ghana: evidence from a propensity score matching analysis-
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Abstract: Abstract Microinsurance has emerged as a potential way to fortify the financial resilience of low-income households by providing a safety net against economic uncertainty and promoting financial inclusion for the poor. In light of the current economic downturn in Ghana, several institutions have advocated for the implementation of microinsurance programmes to support the financial stability of low-income households in the informal sector. This study assesses the impact of microinsurance on the financial resilience of the poor in Ghana, proxied by income and precautionary savings. The study analyses data on 1453 households from three regions using propensity score matching, Tobit and Probit instrumental variable techniques. The study finds that microinsurance adoption improves the financial resilience of the poor and reduces dependence on precautionary savings, a self-insurance strategy which significantly increases the financial burden on households, thereby exacerbating the impact of shocks.
PubDate: 2024-05-05
DOI: 10.1057/s41288-024-00325-0
- Microinsurance in Ghana: investigating the impact of Outreville's
four-factor framework and firm and product characteristics on adoption-
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Abstract: Abstract Microinsurance is a risk management tool for low-income households. However, its adoption is low in Ghana. This study examines the determinants of microinsurance adoption in Ghana, analysing primary data from 1453 households across six key markets and three regions. We also gathered secondary data from 14 microinsurance firms and 47 microinsurance products between 2017 and 2021. We estimate the critical factors influencing microinsurance uptake using robust probit, fixed-effects and panel-corrected standard error models. Our findings indicate that income levels, trust in financial institutions and participation in community risk management groups and the national health insurance scheme are the key determinants affecting microinsurance adoption. Firm- and product-specific factors such as affordability, outstanding claims, risk premiums and benefits paid to microinsurance participants also influence adoption. This study also highlights the crucial role of structural, social and economic factors in predicting demand for microinsurance, utilising Outreville's four-factor insurance demand framework.
PubDate: 2024-05-04
DOI: 10.1057/s41288-024-00324-1
- Using the Taiwan National Health Insurance Database to explore the need
for long-term care-
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Abstract: Abstract Several factors contribute to the lack of long-term care (LTC) insurance in Taiwan, insufficient data and an absence of unified definitions of LTC are two of them. In this study, we use LTC-related catastrophic illness (CI) as the assessment criteria to investigate the demand for LTC insurance. We selected 13 categories of CI and explored the spatial–temporal properties of LTC incidence rates and mortality rates from the National Health Insurance Research Database. The study shows that the incidence rates did not change much, while mortality rates decreased significantly. Taiwan’s LTC population, which was 0.29 million in 2013, is accordingly expected to triple before 2040 based on the proposed cohort change ratio approach. Currently, Taiwan’s government has planned to fund LTC insurance via a pay-as-you-go system. Furthermore, the increasing LTC population indicates that commercial insurance can play a vital role as a supplement to social LTC insurance.
PubDate: 2024-04-04
DOI: 10.1057/s41288-024-00323-2
- Do sustainability attributes play a role for individuals’ decisions
regarding unit-linked life insurance' A survey research on German private
investors-
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Abstract: Abstract The aim of this paper is to investigate the relevance of sustainable product attributes as compared to ongoing costs and risk–return profiles when individuals choose funds underlying unit-linked life insurances. Regarding sustainability attributes, we focus on the product classification according to the Sustainable Finance Disclosure Regulation as a European regulatory transparency standard, and on sustainable investment strategies. We conduct two choice-based conjoint analyses using a German panel for unit-linked life insurances as well as fund savings plans as a financial product comparison. We estimate the relative importance, part-worth utilities, and the marginal willingness to pay for changes in product attributes. Our results suggest that private investors of unit-linked life insurances value sustainable product attributes and that they result in a slightly higher marginal willingness to pay, but risk–return indicators and especially ongoing costs are currently more relevant. We find further indications that sustainability attributes are less relevant in the setting of a unit-linked life insurance as compared to a fund savings plans setting.
PubDate: 2024-04-03
DOI: 10.1057/s41288-024-00313-4
- Longevity risk and capital markets: the 2022–2023 update
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PubDate: 2024-04-01
- How suitable are equity release mortgages as investments for pension
funds'-
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Abstract: Abstract This article examines the claim that equity release mortgages, the U.K. equivalent of reverse mortgages in the U.S., are suitable investments for pension funds. We present valuation, stress test and scenario analysis results that suggest that equity release mortgages are unsuitable for pension funds because: (i) they bear returns that are typically below the risk-free rate; (ii) they are not hedges for annuity books, let alone good hedges; and (iii) they are heavily exposed to house price risk, which annuity books are not. Our results suggest that equity release mortgages meet none of these criteria to be suitable for pension funds and are almost entirely dominated by risk-free government bonds. We offer an explanation for why investors appear to be unaware of the low returns on equity release mortgages.
PubDate: 2024-03-24
DOI: 10.1057/s41288-024-00316-1
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