Insurance design in the presence of safety nets

Teh, Tse-Ling

doi:10.1016/j.jpubeco.2017.03.001

Cited by 7 publications

(3 citation statements)

References 17 publications

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“…Our findings reinforce theoretical and case-based assessments in the literature which show that local scale social service provision can contribute to disaster resilience (Rapeli et al 2018). There is also evidence that safety net assistance and insurance can reduce disaster risk, improve welfare (Teh 2017), and social allowances can help households strengthen their resilience to disasters (Arouri, Nguyen, and Ben Youssef 2015). Generally, for the developed world, social protection is considered an important tool for managing the human risk of hazards, e.g.…”

Section: Discussionmentioning

confidence: 99%

What causes nations to recover from disasters? An inquiry into the role of wealth, income inequality, and social welfare provisioning

Tselios

Tompkins

2019

International Journal of Disaster Risk Reduction

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Disasters affect significant numbers of people in the poorest parts of the world. The main impediment to progress in reducing the extent of disaster outcomes appears to come from inabilities to address macro-economic drivers of vulnerability. This study examines the association between three key drivers of vulnerability, i.e. wealth/poverty, income inequality and the absence/presence of social welfare systems, and short-term and long-term disaster outcomes.Drawing on lengthy time-series data, we apply a data driven approach, focusing only on those countries that have experienced major natural or technological disasters, to generate new understanding of these drivers. Our study finds that in relation to natural hazards: less developed countries experience worse human impacts than more developed countries; developed countries suffer larger economic losses; countries with greater levels of income inequality have more people affected than in more equal countries; and social welfare (using both Sen's indexes and public social spending) in OECD countries appears to reduce the human impacts of disasters. We also conclude that the human impacts of natural disasters delay economic growth in poor countries. For the technological hazard-associated disasters, while there is no evidence that national wealth and income inequality determine human impacts, we find that larger human impacts in poor countries undermines economic growth. Our key finding is the unequivocal and central role of income inequality in shaping disaster outcomes. Future research and policy on disaster risk reduction has to acknowledge this 'elephant in the room'.

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Section: Discussionmentioning

confidence: 99%

What causes nations to recover from disasters? An inquiry into the role of wealth, income inequality, and social welfare provisioning

Tselios

Tompkins

2019

International Journal of Disaster Risk Reduction

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“…For example, the comparative statics results of Ehrlich and Becker (1972) and Viscusi (1979) deal exclusively with actuarially fair situations. Many recent studies, such as Eeckhoudt et al (2003), Huang and Tzeng (2006) and Teh (2017), also impose this assumption for their comparative statics analyses.…”

Section: Comparative Staticsmentioning

confidence: 99%

Variance Contracts

Chi,

Zhou,

Zhuang

2020

Preprint

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We study the design of an optimal insurance contract in which the insured maximizes her expected utility and the insurer limits the variance of his risk exposure while maintaining the principle of indemnity and charging the premium according to the expected value principle. We derive the optimal policy semi-analytically, which is coinsurance above a deductible when the variance bound is binding. This policy automatically satisfies the incentive-compatible condition, which is crucial to rule out ex post moral hazard.We also find that the deductible is absent if and only if the contract pricing is actuarially fair. Focusing on the actuarially fair case, we carry out comparative statics on the effects of the insured's initial wealth and the variance bound on insurance demand.Our results indicate that the expected coverage is always larger for a wealthier insured, implying that the underlying insurance is a normal good, which supports certain recent empirical findings. Moreover, as the variance constraint tightens, the insured who is prudent cedes less losses, while the insurer is exposed to less tail risk.

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“…In this sense index‐based contracts are second best, as they do not cover all the risk. This is sometimes also termed an incomplete contract (Teh, )…”

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confidence: 99%

A Better Trigger: Indices for Insurance

Teh¹,

Woolnough²

2018

J of Risk & Insurance

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Index triggers have enabled the extension of insurance to a wide range of risks, by providing a simple mechanism to determine payment. However, the resulting coverage generates basis risk, the variability over time in the level of insurance payouts relative to the level of losses. We analyze basis risk to rank binary and multivalue indices for any risk-averse individual. Our ranking provides methods to select an index that is optimal for a heterogeneous group and illustrates that higher correlation between loss and index, does not necessarily equate to a better index. 1 861 861Vol. 86, No. 4, 861-885 (2019).

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Insurance design in the presence of safety nets

Cited by 7 publications

References 17 publications

What causes nations to recover from disasters? An inquiry into the role of wealth, income inequality, and social welfare provisioning

What causes nations to recover from disasters? An inquiry into the role of wealth, income inequality, and social welfare provisioning

Variance Contracts

A Better Trigger: Indices for Insurance

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