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1 – 10 of over 8000Minghua Ye, Rongming Wang, Guozhu Tuo and Tongjiang Wang
The purpose of this paper is to demonstrate how crop price insurance premium can be calculated using an option pricing model and how insurers can transfer underwriting risks in…
Abstract
Purpose
The purpose of this paper is to demonstrate how crop price insurance premium can be calculated using an option pricing model and how insurers can transfer underwriting risks in the futures market.
Design/methodology/approach
Based on data from spot and futures market in China, this paper develops an improved B-S model for the calculation of crop price insurance premium and tests the possibility of hedging underwriting risks by insurance firms in the futures market.
Findings
The authors find that spot price of crops in China can be estimated with agricultural commodity futures prices, and can be taken as the insured price for crop price insurance. The authors also find that improved B-S model yields better estimation of crop price insurance premium than traditional B-S model when spot price does not follow geometric Brownian motion. Finally, the authors find that hedging can be one good alternative for insurance firms to manage underwriting risks.
Originality/value
This paper develops an improved B-S model that is data-driven in nature. Insured price of the crop price insurance, or the exercise price used in the B-S model, is estimated from a co-integration model built on spot and futures market price series. Meanwhile, distributional patterns of spot price series, one important factor determining the applicability of B-S model, is factored into the improved B-S model so that the latter is more robust and friendly to data with varied distributions. This paper also verifies the possibility of hedging of underwriting risks by insurance firms in the futures market.
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Maria Teresa Medeiros Garcia and Joana Teresa Silva Cortegano
The purpose of this paper is to analyse the determinants of workers’ compensation insurance prices in Portugal.
Abstract
Purpose
The purpose of this paper is to analyse the determinants of workers’ compensation insurance prices in Portugal.
Design/methodology/approach
Multiple regression analysis was used to study the insurance price determinants. The independent variables considered are: payroll, number of employees, and incidence rate. In addition, three categorical variables were used: region, classification of economic activities, and enterprise size. A cross-firm panel data sample from the SABI database of 1,435 firms was considered, over a time horizon from 2010 to 2012. Furthermore, the sample split criterion was the enterprise size.
Findings
As expected, the results suggest that payroll and number of employees are related with workers’ compensation insurance prices. Furthermore, incidence rate, region, type of economic activities, and enterprise size have a positive and significant influence on premiums.
Research limitations/implications
More panel data are needed to allow a greater focus on the impacts of GDP fluctuations and sectoral consolidation on insurance pricing. Further research could also include the impact of capital/reserving cycles, which can be driven both by economic shocks and the competition cycle. It is well known that insurers tend to reduce reserving standards when under pressure, and this can result in inadequate pricing.
Practical implications
The process of workers’ compensation insurance price formation is disentangled. The results suggest that the workers’ compensation insurance premiums behave as expected, especially under periods of economic strain. Therefore, workers’ compensation rate regulation should take this evidence into account, specifically through the establishment of minimum rates, which will protect the insurer, the employer, and the employees alike.
Originality/value
The paper is part of a considerable literature on insurance pricing in workers’ compensation, most of which has centred on private markets in the USA. This paper is the first empirical work that employs private market data for Portugal.
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Few issues in business ethics are as polarizing as the practice of risk classification and underwriting in the insurance industry. Theorists who approach the issue from a…
Abstract
Few issues in business ethics are as polarizing as the practice of risk classification and underwriting in the insurance industry. Theorists who approach the issue from a background in economics often start from the assumption that policy-holders should be charged a rate that reflects the expected loss that they bring to the insurance scheme. Yet theorists who approach the question from a background in philosophy or civil rights law often begin with a presumption against so-called “actuarially fair” premiums and in favor of “community rating,” in which everyone is charged the same price. This paper begins by examining and rejecting the three primary arguments that have been given to show that actuarially fair premiums are unjust. It then considers the two primary arguments that have been offered by those who wish to defend the practice of risk classification. These arguments overshoot their target, by requiring a “freedom to underwrite” that is much greater than the level of freedom enjoyed in most other commercial transactions. The paper concludes by presenting a defense of a more limited right to underwrite, one that grants the legitimacy of the central principle of risk classification, but permits specific deviations from that ideal when other important social goods are at stake.
Lu-Ming Tseng, Yue-Min Kang and Chi-Erh Chung
The purpose of this paper is to examine the impacts of loss-premium comparisons (loss-premium comparison refers to the amount of an actual loss compared to the premium level) and…
Abstract
Purpose
The purpose of this paper is to examine the impacts of loss-premium comparisons (loss-premium comparison refers to the amount of an actual loss compared to the premium level) and insurance coverage on customer acceptance of insurance claim frauds, based on Adams’ equity theory. Customer perceptions of insurance frauds have been studied in recent years.
Design/methodology/approach
A questionnaire was used as an instrument in the research. The hypotheses were tested using a 3 loss-premium comparisons (the actual loss amount was lower than, or equal to or higher than the annual premium) × 2 insurance coverage (the loss is covered or not covered by the insurance policy) experimental design in a claim application context.
Findings
The results showed that loss-premium comparisons and insurance coverage significantly affect the final claim amounts. According to the results, age and education may relate to customer acceptance of insurance claim frauds.
Originality/value
This study proposed a first empirical investigation into the relationship between loss-premium comparisons and customer ethical decision making in the customer frauds. Insurance coverage is also specifically considered in the study.
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Here the author proposes the Mutual Insurance Model with Incentive Compatibility (MIMIC). MIMIC is a model for deposit insurance that mimics the incentives and practices of a…
Abstract
Here the author proposes the Mutual Insurance Model with Incentive Compatibility (MIMIC). MIMIC is a model for deposit insurance that mimics the incentives and practices of a private sector, mutual, insurance organisation. The main features of MIMIC are: fully risk‐based premiums, payments by the Federal Deposit Insurance Corporation (FDIC) to the US Treasury Department (the Treasury) for its line of credit and ‘catastrophe insurance’, rebates to banks when the reserve ratio exceeds a risk‐based ceiling, surcharges on banks when the reserve ratio dips below a risk‐based floor, dilution fees on deposit growth to maintain reserve ratio and refunds to banks to maintain reserve ratio when their deposits shrink.
The purpose of this paper is to examine international experience with multiple-peril crop insurance (MPCI). Named peril crop insurance is available in most countries but MPCI is…
Abstract
Purpose
The purpose of this paper is to examine international experience with multiple-peril crop insurance (MPCI). Named peril crop insurance is available in most countries but MPCI is less common. While named peril insurance is widely successful, MPCI has a checkered history. In most cases, MPCI actuarial experience has been poor and large premium subsidies have been required to incentivize purchasing.
Design/methodology/approach
International experience with MPCI is reviewed with a particular focus on the USA which has the largest MPCI program in the world. Rationales for government involvement in facilitating MPCI offers are examined and future challenges are explored.
Findings
In most cases, MPCI actuarial experience has been poor and large premium subsidies have been required to incentivize purchasing. MPCI purchasing has increased dramatically in recent years but so have government expenditures to support MPCI programs. Significant challenges remain with providing cost-effective MPCI coverage for crop farmers.
Originality/value
While previous articles have reviewed MPCI in the USA, this paper also considers experiences in other countries. Future challenges and research needs are described.
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Rent seeking is endemic to the process through which any policy or regulatory initiative is developed in the USA. The purpose of this paper is to show how farm and other interest…
Abstract
Purpose
Rent seeking is endemic to the process through which any policy or regulatory initiative is developed in the USA. The purpose of this paper is to show how farm and other interest groups have formed coalitions to benefit themselves at the expense of the federal government by examining the legislative history of the federal crop insurance program.
Design/methodology/approach
The federal crop insurance legislation and the way in which the USDA Risk Management Agency manages federal crop insurance program are replete with complex and subtle policy initiatives. Using a new theoretical framework, the study examines how, since 1980, three major legislative initiatives – the 1980 Federal Crop Insurance Act, the 1994 Crop Insurance Reform Act and the 2000 Agricultural Risk Protection Act – were designed to jointly benefit farm interest groups and the agricultural insurance industry, largely through increases in government subsidies.
Findings
Each of the three legislative initiatives examined here included provisions that, when considered individually, benefitted farmers and adversely affected the insurance industry, and vice versa. However, the joint effects of the multiple adjustments included in each of those legislative initiatives generated net benefits for both sets of interest groups. The evidence, therefore, indicates that coalitions formed between the farm and insurance lobbies to obtain policy changes that, when aggregated, benefited both groups, as well as banks with agricultural lending portfolios. However, those benefits came at an increasingly substantial cost to taxpayers through federal government subsidies.
Originality/value
This is the first analysis of the US federal crop insurance program to examine the issue of coalition formation.
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Teresa Serra, Barry K. Goodwin and Allen M. Featherstone
The crop insurance purchase decision for a group of Kansas farmers is analyzed using farm‐level data from the 1990s, a period that experienced many changes in the federal crop…
Abstract
The crop insurance purchase decision for a group of Kansas farmers is analyzed using farm‐level data from the 1990s, a period that experienced many changes in the federal crop insurance program. Results indicate a reduction in the elasticity of the demand for crop insurance with respect to premium rates by the end of the decade. The reduction in demand elasticity corresponded with a considerable increase in government subsidies by the end of the 1990s. This result may also reflect the attractiveness of new revenue insurance products which may have made producers less sensitive to premium changes.
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Petri Liesivaara and Sami Myyrä
The purpose of this paper is to investigate the demand for crop insurance. Moreover, farmer willingness to pay (WTP) for crop insurance was derived. Factors affecting the demand…
Abstract
Purpose
The purpose of this paper is to investigate the demand for crop insurance. Moreover, farmer willingness to pay (WTP) for crop insurance was derived. Factors affecting the demand were also examined in a country where crop insurance products are not currently available. Sensitivity analysis was conducted by studying the price-anchoring effect.
Design/methodology/approach
Data from a choice experiment (CE) were analyzed with mixed logit models and the distribution of farmer WTP for crop insurance was derived. A split sample approach with varying premium vectors was used to analyze the price-anchoring effect.
Findings
Demand was revealed for crop insurance products in Finland. The demand was higher among younger farmers and farms with more arable land. WTP for crop insurance products was very sensitive to the premium interval presented in the CE design.
Research limitations/implications
The price-anchoring effect may disrupt the market development of crop insurance products, because insurance companies may take advantage of the lack of awareness among farmers of crop insurance pricing.
Practical implications
The insurance product expected indemnity was a more important factor than the deductible in determining farmer WTP for crop insurance. Therefore, the 30 percent deductible level set for subsidized crop insurance products is not an obstacle for the development of such products in the EU.
Originality/value
The study applied a well-known method (CE) to crop insurance in a country where these products are non-existent. The split sample approach was used to examine the price-anchoring effect on crop insurance.
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ANNA RITA BACINELLO and SVEIN‐ARNE PERSSON
The authors present a model that incorporates stochastic interest rates to value equity‐linked life insurance contracts. The model generalizes some previous pricing results of…
Abstract
The authors present a model that incorporates stochastic interest rates to value equity‐linked life insurance contracts. The model generalizes some previous pricing results of Arne and Persson [1994] that are based on deterministic interest rates. The article also proposes and compares a design for a new equity‐linked product with the periodical premium contract of Brennan and Schwartz [1976]. The advantages of the proposed prod‐uct are its simplicity in pricing and its ease of hedging, by using either by long positions in the linked mutual fund or by European call options on the same fund.