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Article
Publication date: 1 March 2007

Yuhua Qiao

Public risk management is a relatively new but important element of public management and public budgeting. As research in this area is limited, this study attempts to…

Abstract

Public risk management is a relatively new but important element of public management and public budgeting. As research in this area is limited, this study attempts to advance knowledge on two specific elements of public risk management based on a survey sent to the Public Risk Management Association (PRIMA) members in 2002. 1) How do public entities use various risk funding techniques (e.g., purchasing insurance, self-insurance, and intergovernmental risk pools)? 2) Have public entities implemented integrated risk management in their risk management practices? The survey found evidence that integrated risk management is emerging in public risk management practice. As this is an exploratory study, the author also identifies a series of questions for future research.

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Journal of Public Budgeting, Accounting & Financial Management, vol. 19 no. 1
Type: Research Article
ISSN: 1096-3367

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Article
Publication date: 28 October 1988

Gary J. Blatter and Jayne Fuglister

Almost all firms have taken measures to reduce the employee health claim cost component of health care expense. Many large firms have also been able to reduce the…

Abstract

Almost all firms have taken measures to reduce the employee health claim cost component of health care expense. Many large firms have also been able to reduce the transaction costs of health insurance by changing to partial or full self‐insurance. For smaller firms the self‐insurance decision involves careful weighing of cash flow and tax considerations against risk consequences. This paper analyzes the risk trade offs inherent in the self‐insurance decision. A case study illustrates how cash flow and tax considerations affect the cost of partial and full self‐insurance for a medium size firm.

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American Journal of Business, vol. 3 no. 2
Type: Research Article
ISSN: 1935-5181

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Article
Publication date: 2 November 2015

Claire Mosnier

From the perspectives of the probable replacement of the national calamity funds by multi-peril grassland insurance, the purpose of this paper is to estimate demand for…

Abstract

Purpose

From the perspectives of the probable replacement of the national calamity funds by multi-peril grassland insurance, the purpose of this paper is to estimate demand for grassland production insurance.

Design/methodology/approach

A discrete stochastic programming model with a three-year planning horizon was used to run simulations for farms raising suckler cows primarily with grasslands. In this model, the annual area insured and some production decisions are optimized under grasland yield uncertainty, with possible ex post production-system adjustments. The effects of insurance loading cost (14 levels), insurance coverage level (three levels), risk aversion (two levels) and stock levels (forage and animal stocks vary according to grassland yields and to farm management of the previous years) were analyzed.

Findings

The results show that grassland insurance could be used as a flexible risk management tool, when farm becomes vulnerable to fodder shortfall. According to previous years’ grassland yields and to the subsequent states of hay stock and animal liveweight, the area insured could vary between nearly the none and full. Farmers with low-average stocking rate and important hay storage capacity have less incentive to buy grassland insurance. The author also demonstrates that for a given loading cost, more insurance is purchased at a coverage level of 70 percent of average yield than at higher coverage levels. The cost of self-insurance increases for important and rare losses while multi-peril grassland insurance premium decreases. Higher levels of risk aversion also raise the quantity of insurance subscribed. Eventually, insurance price is a key factor. Almost no insurance is bought for loading costs greater than 1.1 under low-risk aversion and for loading costs greater than 1.3 under moderate risk aversion.

Research limitations/implications

The willingness to pay for insurance could have been overestimated for different reasons. First, basis risks have not been introduced in the simulation framework. Although the Forage Production Index performed quite well, basis risks are high enough to trigger inappropriate indemnifications in some cases. Consequences of these risks should be estimated in further research. Second, other self-insurance options and public emergency measures such as subsidized loan or reduction in social security contributions should also be considered to assess and reduce farmers vulnerability to risks.

Practical implications

The launching of the multi-peril grassland insurance is likely to be successful thanks to the 65 percent of public subsidies on insurance premiuml. However, considering that the loading cost is likely to be high and that demand for grassland production insurance is rather low, multi-peril grassland production insurance may struggle to continue unsubsidized.

Originality/value

This paper provides a framework that enables to estimate demand for grassland production insurance factoring in substitution with self-insurance and taking into account successive risks.

Details

Agricultural Finance Review, vol. 75 no. 4
Type: Research Article
ISSN: 0002-1466

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Article
Publication date: 1 January 1993

Judith Fortson

A disaster such as a fire, earthquake, hurricane, or flood can cause extensive damage to a library and its collection. Part of an effective disaster preparedness program…

Abstract

A disaster such as a fire, earthquake, hurricane, or flood can cause extensive damage to a library and its collection. Part of an effective disaster preparedness program is making sure your library will be able to absorb the financial risk should you need to replace or repair damaged materials. This article explores the various options for defraying the costs of a disaster, including self‐insurance, federal aid, and the different types of insurance coverage that are available.

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The Bottom Line, vol. 6 no. 1
Type: Research Article
ISSN: 0888-045X

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Article
Publication date: 6 August 2020

Antonio Francisco de Almeida da Silva Junior

This work presents a model of a two-period economy to discuss the link between the precautionary motivation for holding international reserves and the country's monetary…

Abstract

Purpose

This work presents a model of a two-period economy to discuss the link between the precautionary motivation for holding international reserves and the country's monetary policy concerns due to a crisis.

Design/methodology/approach

There are two possible states of nature in the second period of the economy: a normal state and a crisis state. These states of nature represent uncertainty to the policy maker and he can insure against a crisis. The household has a constant-elasticity-of-substitution (CES) utility function, where utility depends on consumption and money.

Findings

By allowing money in the utility function and in the household financial constraint and considering that the objective of the central bank is to smooth inflation, it is concluded that monetary policy plays a role in the precautionary motivation of holding international reserves.

Practical implications

The model can be used to calculate optimal reserves holdings in its complete or even in its simplified version. Furthermore, it is possible to evaluate the impact of the intra-temporal substitution elasticity between consumption and real money in the decision of accumulating international reserves.

Originality/value

Higher intra-temporal substitution elasticities implies in more insurance via international reserves, and this discussion is not found in the existent literature on international reserves.

Details

International Journal of Emerging Markets, vol. 16 no. 8
Type: Research Article
ISSN: 1746-8809

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Article
Publication date: 8 November 2011

Kenneth Poon and Alfons Weersink

The purpose of this paper is to examine the factors affecting the relative variability in farm and off‐farm income for Canadian farm operators.

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Abstract

Purpose

The purpose of this paper is to examine the factors affecting the relative variability in farm and off‐farm income for Canadian farm operators.

Design/methodology/approach

Variability of farm and off‐farm income is analyzed using a dataset of 17,000 farm operators from 2001 to 2006. Relative ranking of the coefficients of variation (CV) for farm and off‐farm income are compared across farm types and are regressed against factors conditioning the variations.

Findings

Greater reliance on farm income results in lower (greater) relative variability in farm (off‐farm) income. Larger commercial operations experience larger farm income volatility because they are less risk averse or they can manage more risk. Diversification and off‐farm employment appear to be risk management strategies for commercial operations.

Research limitations/implications

Government payments have a small, positive effect on farm and off‐farm income variability, indicating this support leads farmers to take on more risky activities and/or reduce the use of self‐insurance activities. Results could also be due to the lag between the time of the income reduction and the time in which the aid is received. Further research is necessary to decipher the effects of government support on farm decisions.

Practical implications

The results on relative variation in the farm and off‐farm income across farm type raises questions about whether government programs should target specific operations.

Originality/value

While income variation remains a focus of public policy, factors affecting its variability are not well‐understood. Studies have examined the level of farm income and the decision to participate in off‐farm employment but none has examined the variance in both income sources.

Details

Agricultural Finance Review, vol. 71 no. 3
Type: Research Article
ISSN: 0002-1466

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Article
Publication date: 1 January 2001

J.B. Heaton

Until recently, financial intermediaries have behaved as though immune from the bite of intellectual property law. However, recent decisions of the federal courts and…

Abstract

Until recently, financial intermediaries have behaved as though immune from the bite of intellectual property law. However, recent decisions of the federal courts and acquiescence by Congress have created a new legal landscape. This article explores the basic principles and implications of patent law for risk finance, specifically in terms of emerging opportunities and incentives related to structured risk management solutions. In so doing, the discussion introduces the trade‐off between past reliance on trade secret law versus the evolving trend toward financial patents. The author addresses its influence within the convergence markets, and argues that patents may play a significant role in future financial and insurance innovation.

Details

The Journal of Risk Finance, vol. 2 no. 2
Type: Research Article
ISSN: 1526-5943

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Article
Publication date: 3 May 2016

Ana Marr, Anne Winkel, Marcel van Asseldonk, Robert Lensink and Erwin Bulte

The purpose of this paper is to review the most recent scientific literature on the determinants explaining the demand for index-insurance, the impact of index-insurance…

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Abstract

Purpose

The purpose of this paper is to review the most recent scientific literature on the determinants explaining the demand for index-insurance, the impact of index-insurance and the existing links between insurance and credit. In this meta-analysis, the authors identify key discoveries on the potential of index-insurance in enhancing credit supply for smallholders and thus farm productivity.

Design/methodology/approach

Following a systematic literature search in Scopus and Web of Science, relevant empirical articles were identified by using the following criteria search algorithm: “insurance” and (“weather” or “micro” or “area?based” or “rain*” or “livestock” or “index”), and ((“empiric*” or “experiment” or “trial” or “RCT” or “impact”) or (“credit” or “loan*” or “debt” or “finance”)). The authors identified 1,133 related papers, 110 of which were selected as closely matching the study criteria. After removing duplicates and analysing each document, 45 papers were included in the current analysis. The framework for addressing insurance and credit issues, in the paper, entails three subsequent themes, namely, adoption of insurance, impact of insurance and links between insurance and credit.

Findings

It is not confirmed yet that demand for insurance is indeed hump-shaped in risk aversion and the functional form of this relationship should be tested in more detail. This also holds for the magnitude of the effect of trust and education on actual demand. Furthermore, it is unclear to what extent other risk mitigation strategies form complements or substitutes to index-insurance. Lastly, the interaction between basis risk and price is important to the design of index-insurance products. If basis risk and price elasticity are indeed highly correlated, products that diminish basis risk are crucial in increasing demand. On the impact of bundled products, e.g. combination of insurance and credit, limited empirical research has been conducted. For example, it is unknown to what extent credit suppliers would react to the insured status of farmers or what the preferences of farmers are when it comes to a mix of financial products. In addition, several researchers have suggested that microfinance institutions or banks could insure themselves against covariate risk, yet no empirical evidence about this insurance mechanism has been conducted so far.

Research limitations/implications

The authors based the research on scientific literature uploaded in Scopus and Web of Science. Other potentially insightful grey literature was not included due to lack of accessibility. Given the research findings, there is plenty of opportunity for further research particularly with regard to the effects of bundled products, e.g. insurance plus credit, on demand for index-insurance, supply of credit, loan conditions and impact on farm productivity and farmers’ well-being.

Practical implications

Microfinance institutions, insurance companies, NGOs, research institutions and universities, particularly in developing countries, will be interested to learn about the systematic review of scientific research done in the area of insurance and credit for agriculture and the possibilities for application in their own practice of supplying these financial products.

Social implications

A rigorous understanding of the potential of index-insurance and credit is essential for identifying the right mix of financial products that help smallholder farmers to increase farm productivity and their own well-being.

Originality/value

The paper is valuable due to its rigorous evaluation of existing theoretical and empirical research around issues explaining the degree of adoption and impact of index-insurance and that of bundled financial products (i.e. index-insurance plus credit). The paper has the potential to become essential reading for academics, practitioners and policy-makers interested in researching and putting in practice the best options leading to greater farm productivity and well-being in developing countries.

Details

Agricultural Finance Review, vol. 76 no. 1
Type: Research Article
ISSN: 0002-1466

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Article
Publication date: 5 June 2017

Merike Kukk

The paper aims to investigate the impact of financial liabilities on households’ holdings of financial assets. The debt-to-income ratio of the household sector increased…

Abstract

Purpose

The paper aims to investigate the impact of financial liabilities on households’ holdings of financial assets. The debt-to-income ratio of the household sector increased from 75 per cent in 2000 to 99 per cent in 2010 in the euro area on average, and the rapid accumulation of household debt has induced the need to study how indebtedness affects the behaviour of households beyond their borrowing decisions.

Design/methodology/approach

The paper uses the first wave of the Household Finance and Consumption Survey from 2009-2010 covering euro area countries. The paper estimates a system of equations for households’ financial liabilities and assets, taking account of endogeneity and selection bias.

Findings

The results indicate that higher household liabilities are related to lower holdings of financial assets. The results are confirmed by a large number of robustness tests. The findings support the hypothesis that credit availability reduces precautionary savings as income shocks can be smoothed by borrowing, meaning fewer assets are held for self-insurance against consumption risk.

Practical implications

The results are obtained from a recession period when households faced aggregate shocks, whereas credit constraints were tighter than during good times. The implications of lower incentives to keep financial assets by indebted households is that they are actually more vulnerable to aggregate shocks, as they have fewer resources available when they are hit by a negative shock.

Originality/value

This is the first paper to investigate the effect of liabilities on financial assets using household level data. The paper takes a holistic view and models financial assets and liabilities jointly while controlling for endogeneity and selection bias.

Details

Studies in Economics and Finance, vol. 34 no. 2
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 1 March 1980

JAMES TYE

The meteoric growth of Risk Management in the last ten years in the USA is now starting to be experienced in Europe. This is because cost conscious companies instead of…

Abstract

The meteoric growth of Risk Management in the last ten years in the USA is now starting to be experienced in Europe. This is because cost conscious companies instead of having different departments dealing with identifying risks, measuring risk, controlling risks, or financing risks either externally or through self insurance, are now realising that their real objective is one of CONSERVING ALL RESOURCES. What is the distinction — often overlooked — between hazard and risk? What do we understand by pure and speculative risks?

Details

Industrial and Commercial Training, vol. 12 no. 3
Type: Research Article
ISSN: 0019-7858

1 – 10 of 209