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1 – 10 of over 5000Timothy A. Delbridge and Robert P. King
The USDA’s Risk Management Agency (RMA) made several changes to the crop insurance products available to organic growers for the 2014 crop year. Most notably, a 5 percent premium…
Abstract
Purpose
The USDA’s Risk Management Agency (RMA) made several changes to the crop insurance products available to organic growers for the 2014 crop year. Most notably, a 5 percent premium surcharge was removed and organic-specific transitional yields (t-yields) were issued for the first time. The purpose of this paper is to use farm-level organic crop yield data to analyze the impact of these reforms on producer insurance outcomes and compare the insurance options for new organic growers.
Design/methodology/approach
This study uses a unique panel data set of organic corn and soybean yields to analyze the impact of organic crop insurance reforms. Actual Production History values and premium rates are calculated for each farm and crop yield sequence. Producer loss ratios and subsidized premium wedges are compared for yield, revenue and area-risk products before and after the instituted reforms.
Findings
Results indicate that RMA succeeded in improving the actuarial soundness of the organic insurance program, though further refinement of organic t-yields may be necessary to accurately reflect the yield potential of organic producers and avoid reductions in program participation.
Originality/value
This paper provides insight into the effectiveness of reforms intended to improve the actuarial soundness of organic crop insurance and demonstrates the effect that the reforms are likely to have on new and existing organic farms. Because this analysis uses data collected independently of RMA and includes farms that may or may not have purchased crop insurance, it avoids the self-selection problems that might affect analyses using crop insurance program data.
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Minghua 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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Aleksandre Maisashvili, Henry Bryant, George Knapek and James Marc Raulston
The purpose of this paper is to develop methods for inferring if crop insurance premiums imply yield distributions that are valid according to standard laws of probability and…
Abstract
Purpose
The purpose of this paper is to develop methods for inferring if crop insurance premiums imply yield distributions that are valid according to standard laws of probability and broadly consistent with observed empirical evidence. The authors also survey current premium-implied distributions both before and after conditioning on the producer’s choice of coverage level.
Design/methodology/approach
Under an assumption of actuarial fairness, the authors derive expressions for upper and lower bounds for premium-implied yield cumulative distribution functions (CDFs) at loss thresholds for each coverage level. When observed premiums imply a CDF that exceeds one or is not non-decreasing, the authors conclude that premiums cannot be actuarially fair. The authors additionally specify very weak conditions for premium-implied yield CDFs to be consistent with two possible reasonable parametric distributions.
Findings
The authors evaluate premiums for the year 2018 for 19,104 county-crop-type-practice combinations, both before and after conditioning on producer’s choice of coverage level. The authors find problems in roughly one-third of cases. Problems are exhibited for all crops evaluated, and are strongly associated with areas with lower expected yields and higher yield variability. At least 40m acres are currently insured under premium schedules that cannot possibly be consistent with valid probability distributions.
Originality/value
The authors make two primary contributions. First, the premium-implied yield CDF bounds the authors derive requires fewer assumptions than previous similar work, while simultaneously placing more stringent conditions on premiums to be consistent with actuarial fairness. Second, the authors show that current US crop insurance premiums cannot possibly be actuarially fair for many cases, reflecting tens of millions of insured acres, which implies sub-optimal producer risk mitigation and inequitable expenditures for producers and taxpayers.
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Atina Ahdika, Dedi Rosadi, Adhitya Ronnie Effendie and Gunardi
Farmer exchange rate (FER) is the ratio between a farmer's income and expenditure and is also an indicator of farmers’ welfare. There is little research regarding its use in risk…
Abstract
Purpose
Farmer exchange rate (FER) is the ratio between a farmer's income and expenditure and is also an indicator of farmers’ welfare. There is little research regarding its use in risk modeling in crop insurance. This study seeks to propose a design for a household margin insurance scheme of the agricultural sector based on FER.
Design/methodology/approach
This research employs various risk modeling concepts, i.e. value at risk, loss models and premium calculation, to construct the proposed model. The standard linear, static and time-varying copula models are used to identify the dependency between variables involved in calculating FER.
Findings
First, FER can be considered as the primary variable for risk modeling in agricultural household margin insurance because it demonstrates farmers’ financial ability. Second, temporal dependence estimated using the time-varying copula can minimize errors, reduce the premium rate and result in a tighter guarantee's level of security.
Originality/value
This research extends the previous similar studies related to the use of index ratio in margin insurance loss modeling. Its authenticity is in the use of FER, which represents the farmers' trading capability. FER determines farmers’ losses by considering two aspects: the farmers’ income rate and their ability to fulfill their life and farming needs. Also, originality exists in the use of the time-varying copulas in identifying the dependence of the indices involved in calculating FER.
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Nadine Gatzert and Hato Schmeiser
Definitions of pooling effects in insurance companies may convey the impression that the achieved risk reduction effect will be beneficial for policyholders, since typically lower…
Abstract
Purpose
Definitions of pooling effects in insurance companies may convey the impression that the achieved risk reduction effect will be beneficial for policyholders, since typically lower premiums are paid for the same safety level with an increasing number of insureds, or a higher safety level is achieved for a given premium level for all pool members. However, this view is misleading and the purpose of this paper is to reexamine this apparent merit of pooling from the policyholder's perspective.
Design/methodology/approach
This is achieved by comparing several valuation approaches for the policyholders' claims using different assumptions of the individual policyholder's ability to replicate the contract's cash flows and claims.
Findings
The paper shows that the two considered definitions of risk pooling do not offer insight into the question of whether pooling is actually beneficial for policyholders.
Originality/value
The paper contributes to the literature by extending and combining previous work, focusing on the merits of pooling claims (using the two definitions above) from the policyholder's perspective using different valuation approaches.
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Burhanuddin Susamto and Akhmad Akbar Susamto
This paper aims to develop a novel approach to Islamic deposit insurance, specifically addressing the deficiencies in the current prevailing models of Islamic deposit insurance.
Abstract
Purpose
This paper aims to develop a novel approach to Islamic deposit insurance, specifically addressing the deficiencies in the current prevailing models of Islamic deposit insurance.
Design/methodology/approach
The analysis in this paper adopts a qualitative content analysis approach to review the existing literature on Islamic deposit insurance and propose a new model.
Findings
The proposed model includes a revised scheme. In the event of a bank failure, the funds used to reimburse depositors of the failed bank are divided into two distinct categories. The first category includes nonrepayable premiums that have been previously paid by the failed bank and managed by the Islamic deposit insurance agency or Islamic deposit insurance corporation. The second category comprises qard hasan, an interest-free loan provided by the Islamic deposit insurance agency or Islamic deposit insurance corporation using the deposit insurance funds from the collective pool of premiums of other banks.
Practical implications
The proposed model ensures that well-managed banks are not unfairly burdened by the failures of their poorly managed counterparts, thus preventing a sense of unfairness and inefficiency. Implementing the proposed model may result in higher business practices and risk management standards, ultimately leading to better depositors’ protection and banking system’s stability.
Originality/value
This paper offers a significant contribution to the limited literature on Islamic deposit insurance. The proposed model enriches the discourse and offers valuable insights for the future development of Islamic banking.
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Joseph Cooper, Carl Zulauf, Michael Langemeier and Gary Schnitkey
Farm level data are essential to accurate setting of crop insurance premium rates, but their time series tends to be too short to allow them to be the sole data source. County…
Abstract
Purpose
Farm level data are essential to accurate setting of crop insurance premium rates, but their time series tends to be too short to allow them to be the sole data source. County level data are available in longer time series, however. The purpose of this paper is to present a methodology to make full use of the information inherent in each of these data sets.
Design/methodology/approach
The paper uses a novel application of statistical tools for using farm and county level yield data to generate farm level yield densities that explicitly incorporate within county yield heterogeneity while accounting for systemic risk and other spatial or intertemporal correlations among farms within the county.
Findings
The empirical analysis shows that current approaches used by the Risk Management Agency to individualize premiums for a farm result in substantial mispricing of crop insurance premiums because they do not adequately capture farm yield variability and yield correlations between farms. The new premium setting method is empirically shown to substantially reduce government subsidies for crop insurance premiums.
Originality/value
The paper demonstrates how to extract more information from available data when setting crop insurance premiums, which allows the government to more closely tailor premiums to the farm than do current approaches.
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The purpose of this paper is to analyze the use of telematics in insurance and its consequences for the insurability of risks. Empirical results on monitoring policyholders or…
Abstract
Purpose
The purpose of this paper is to analyze the use of telematics in insurance and its consequences for the insurability of risks. Empirical results on monitoring policyholders or insured objects and its consequences for asymmetric information, as well as claims frequency and severity are discussed. Furthermore, potential future research questions that arise from the use of telematics in risk management and insurance are outlined.
Design/methodology/approach
The paper systematically reviews existing studies and then investigates the consequences of telematics using Berliner’s insurability criteria. The results are based on 52 academic studies and industry papers published from 2000 to 2019.
Findings
The findings emphasize the effects of new information on information asymmetry and risk pooling, the implications of new technologies on loss frequency and severity, legal restrictions and ethical consequences of the use of telematics in the insurance field. Problems with the insurability impede the market development of innovations such as telematics tariffs.
Originality/value
Despite its increasing relevance for businesses at present, research on telematics in insurance is limited. Some papers can be found in the IT domain, but relatively little research has been done in the business and economics literature. The authors illustrate where the research stands currently and outline directions for future research.
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Frederick Davis, Thomas Walker and Linyi Zhou
Within the context of mergers and acquisitions, the purpose of this paper is to clarify the relationship between the deal initiator and various outcomes of the deal, particularly…
Abstract
Purpose
Within the context of mergers and acquisitions, the purpose of this paper is to clarify the relationship between the deal initiator and various outcomes of the deal, particularly in consideration of the cash position of the acquiring firm.
Design/methodology/approach
Using hand-collected deal initiation data from various filings on the Securities Exchange Commission EDGAR online database, this paper performs a series of event study analyses, multivariate analyses, a Heckman two-step estimation procedure, and an instrumental variable approach to examine merger outcomes.
Findings
This paper finds that many merger and acquisition (M&A) outcomes (target and acquirer announcement returns, acquirer long-run returns, premiums, and the method of payment) are significantly related to deal initiation, particularly in consideration of the cash position of the acquiring firm. Overall, evidence is seen as consistent with the theory that “lemons” selectively approach cash-rich acquirers, often to the acquirers’ detriment.
Originality/value
This paper finds that target-initiated deals are not necessarily associated with poorer transaction outcomes for targets as contemporaneous studies suggest, and presents the first empirical evidence of M&A outcomes related to the deal initiator which are dependent on the cash position of the acquiring firm.
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