The Geneva Risk and Insurance Review

Schlütter, Sebastian

doi: 10.1057/s10713-018-0035-xpmid: N/A

Insurance markets all over the world are subject to taxes, which can be collected through various tax schemes. The most commonly used tax schemes in non-life insurance include taxes on the premium income as well as taxes on corporate profits. The mix of those taxes differs substantially across regions. In Europe, for instance, premium taxes are at much higher levels than those in the United States. This paper shows that the particular mix of taxes matters for insurance companies’ solvency levels and insurance premiums, even when the expected tax revenue is fixed. The analysis provides comparative statics that reveal which combination of premium taxation and corporate taxation maximizes welfare. Numerical examples suggest that relatively high premium tax rates are welfare optimal. In general, a low volatility of insurance claims, a strong reaction of insurance demand to insurer default risk, as well as substantial agency issues between shareholders and management make corporate taxation more favorable in comparison to premium taxation.

Bohnert, Alexander; Fritzsche, Albrecht; Gregor, Shirley

doi: 10.1057/s41288-018-0109-0pmid: N/A

With a growing awareness of the potential of innovation provided by digital technology, insurance companies have increasingly adopted digital agendas in their business activities. Our paper studies the relationship between the expression of a digital agenda in annual reports and the business performance of 41 publicly-traded European insurance companies for the time period from 2007 to 2017. Our findings show a positive relationship, which is particularly strong in cases where companies take a comprehensive approach by addressing digital technology both in the context of internal activities within their own organisation and external activities in connection with customers and business partners.

Xiao, Jing; Porto, Nilton

doi: 10.1057/s41288-018-0108-1pmid: N/A

The purpose of this study is to examine the potential effects of consumer financial education on insurance advice seeking with a large and representative national data set in the U.S. Previous research has examined factors associated with insurance advice seeking. After controlling for these factors, financial education, which has not been examined in previous research, is positively associated with this behaviour. Specifically, high school and workplace financial education show positive associations with insurance advice seeking. Further analyses show that there are differences in insurance advice seeking between consumers with and without life insurance.

Dragoş, Simona; Mare, Codruţa; Dragoş, Cristian

doi: 10.1057/s41288-018-0106-3pmid: N/A

The motivation behind this study resides in the heterogeneous development of life insurance across 31 European (developed and former communist) nations over the period 2002–2012. We use the dynamic panel methodology for explaining the main institutional drivers of life insurance consumption. The results show that the most significant institutional factor is governance effectiveness. Among the economic and demographic factors the interest rate and fiscal freedom exert a negative effect on life insurance consumption. Our results can be the basis for improving governance policies in former communist countries and for creating an institutional system of right incentives on the market.

Grislain-Letrémy, Céline; Villeneuve, Bertrand

doi: 10.1057/s10713-018-0032-0pmid: N/A

This paper addresses the urbanization of areas exposed to natural disasters and studies its dependency on land-use and insurance policies. In practice, we observe simple policies, consisting of a prohibited red zone and a zone without insurance tariff differentiation. Even if there are fixed damages per dwelling, the red-zone policy is relatively efficient; it implements the optimal land-use if the losses are proportional to the surface used. The main results are on the effects redefining the optimal red zone as the climate or the population changes. We expose plausible cases in which the red zone grows with a growing population.

Cheng, Jiang; Yu, Lu

doi: 10.1057/s41288-018-0098-zpmid: N/A

This research investigates life and health (LH) insurance consumption by exploiting the significant regional differences in socio-economic, demographic, and environmental factors in China. This paper further decomposes LH insurance consumption into three types: protection, investment, and health products. We find that changes in demographic conditions associated with the one-child policy, the urbanisation process, an ageing population and imbalanced dependency ratio are significantly related to the consumption of LH insurance, and environmental degradation risk is significantly related to the consumption of health insurance. The empirical results also suggest that insurers’ characteristics and pricing strategies are additional important determinants of LH insurance consumption.

Jia, Ruo; Wu, Zenan

doi: 10.1057/s10713-018-0036-9pmid: N/A

A central issue in dynamic contracting is the type of inter-temporal pricing pattern. Some insurance products exhibit a highballing (front-loaded) pattern and others a lowballing (back-loaded) pattern, while still others are flat. We develop a unified competitive dynamic insurance model with asymmetric learning to investigate the impact of insurer commitment on the equilibrium inter-temporal pricing pattern. The model predicts that the equilibrium contract exhibits highballing under one-sided commitment and lowballing under no commitment. We then use a unique empirical setting of two products from one insurer, eliminating heterogeneity in firm, market, time horizon, and learning environment, to isolate the role of insurer commitment in determining the pricing pattern. Consistent with our theoretical predictions, we find that (i) the dynamic contracts exhibit a highballing pattern in loaner’s personal accident insurance, a one-sided commitment scenario, and (ii) a lowballing pattern in group critical illness insurance, a no-commitment scenario.

Direr, Alexis; Ennajar-Sayadi, Rim

doi: 10.1057/s41288-018-0112-5pmid: N/A

We exploit an administrative data set of a big insurance company to assess the effects on annuity demand of a French regulatory reform which impacted actuarial return to deferred life annuity products. Unlike in previous studies, annuity demand is measured by contributions to savings products that result in capital being converted into annuities at retirement. Our identification methodology is based on the fact that while female savers’ annuity rate (conversion rate of capital into annuities) fell by 10%, male savers who did not expect to take the survivor option at retirement were not affected by the reform. Assuming that single men fall into this category, and using this population as a control group, we find a decrease in demand by women of − 16%, which corresponds to a price elasticity of subscriptions of − 1.5. The reform did not significantly alter contributions to saving accounts. We also document a very large anticipation effect created by the opportunity offered to early subscribers to benefit from older pricing.

Zheng, Wei; Liu, Zining; Jia, Ruo

doi: 10.1057/s41288-018-0110-7pmid: N/A

This paper shows empirically how private sector participation improves the adequacy and equality of retirement preparation in a three-pillar retirement system. We develop a three-layer replacement rate approach based on the China Health and Retirement Longitudinal Study, a nationwide representative household survey of middle-aged and old aged population. Our empirical evidence shows that private sector participation increased the mean (median) replacement rate in 2013 from 35.4% (15.4%) to 69.8% (48.7%). The evidence also suggests that annuitising home equity is responsible for a large portion of this increase. Surprisingly, private sector participation also mitigates the inequality of retirement preparation between the formal and informal sectors. Our empirical findings emphasise the importance of annuitisable private savings for the retirement income security of the one-fifth of the global population who live in a representatively high-growth and rapidly ageing economy.

Ohene-Asare, Kwaku; Asare, Jones; Turkson, Charles

doi: 10.1057/s41288-018-0111-6pmid: N/A

Previous insurance efficiency studies have focused on cost efficiency or static and dynamic technical productivity and therefore ignored dynamic cost productivity. Previous studies have also failed to consider economies of scale at the firm level. This study employs a panel data of insurers to assess the dynamic cost productivity growth in Ghana from 2005 to 2014. We also explore the determinants of cost productivity growth in the Ghanaian insurance industry. We find that the introduction of the Insurance Act of 2006 saw some large cost productivity growths; however, since 2012 the industry has been facing some marginal cost productivity decline. The cost improving policies in the Act that encouraged cost efficiency must be revisited by regulators, as it seems that the industry is going back to the pre-regulation cost environment. Additionally, not many insurers have been operating at the optimal production scale over the period.