Loading…
Welcome to the ARIA 2021 Annual Meeting Agenda App. You are seeing this in simple view. Click on any session to see Presenters, Discussants and a Session Description. Click on Presenters to find a single presenter and their sessions. If you find an error, please email gphillips@aria.org. Registrants have been added and will continue to be updated until 7/29/21 when registration closes. Zoom links will be shared directly with all participants two days prior to the conference. Please make notifications@sched.com a "safe sender" in your email system. We will be sending messages throughout the conference through this medium. 

Sign up or log in to bookmark your favorites and sync them to your phone or calendar.

Sunday, August 1
 

10:00am EDT

First Time Attendee Welcome and Information Session ⚑
This session provides first time attendees with an introduction to ARIA, an orientation to the virtual meeting, and the opportunity to meet each other and representatives of the ARIA community in advance of the start of the annual meeting.

1) General Session
  • Welcome
  • Opening Remarks
  • Orientation to ARIA
    • What ARIA Can Do for You
    • What You Need to Know about ARIA
    • RITS and Research
    • How to Get Involved

2) Breakout Q&A Sessions

Thank you to the First Time Welcome Reception Committee members including Brad Karl (East Carolina University), Mary Kelly (Wilfred Laurier University), Cameron Ellis (Temple University), Patty Born (Florida State University), and Casey Rothschild (Wellsley College)

Presenters
avatar for Ty Leverty

Ty Leverty

University of Wisconsin-Madison
Tyler Leverty is an Associate Professor in the Department of Risk and Insurance at the University of Wisconsin-Madison. He holds the Gerald D. Stephens CPCU Distinguished Chair in Risk Management and Insurance.  He is a Senior Editor of the Journal of Risk and Insurance, the current... Read More →
BK

Brad Karl

East Carolina University
Brad Karl the IIANC-NCSLA W. Kurt Fickling Distinguished Associate Professor in Risk Management & Insurance and the Chair of the Department of Finance & Insurance in the College of Business at East Carolina University. His research interests include distracted driving risk, medical... Read More →
avatar for Anne Kelffner

Anne Kelffner

Professor and Chair, Insurance and Risk Management, University of Calgary
Dr. Anne Kleffner, PhD is Professor and Chair, Insurance and Risk Management at the Haskayne School, University of Calgary. Dr. Kleffner 's research interests include enterprise risk management, insurance regulation, and the relationship between ESG (environmental, social and governance) performance... Read More →
avatar for Randy Dumm

Randy Dumm

Professor and Deputy Department Chair, Temple University
avatar for Cameron Ellis

Cameron Ellis

Temple University
avatar for Mary Kelly

Mary Kelly

Professor, Wilfrid Laurier University
Dr Mary Kelly is Professor (Finance) and Chair of Insurance in the Lazaridis School of Business & Economics at Wilfrid Laurier University. She has a B.Math (Statistics) degree and a M.Math (Actuarial Science) degree, both from the University of Waterloo and a Doctorate in Commerce... Read More →
avatar for Ginger Phillips

Ginger Phillips

Executive Director, ARIA Executive Office


Sunday August 1, 2021 10:00am - 11:30am EDT
General Session
 
Monday, August 2
 

9:00am EDT

Opening Ceremony ⚑
Presenters
avatar for Randy Dumm

Randy Dumm

Professor and Deputy Department Chair, Temple University
avatar for Anne Kelffner

Anne Kelffner

Professor and Chair, Insurance and Risk Management, University of Calgary
Dr. Anne Kleffner, PhD is Professor and Chair, Insurance and Risk Management at the Haskayne School, University of Calgary. Dr. Kleffner 's research interests include enterprise risk management, insurance regulation, and the relationship between ESG (environmental, social and governance) performance... Read More →


Monday August 2, 2021 9:00am - 9:10am EDT
General Session

9:15am EDT

Emerging Risk: Catastrophe Models and Capital Markets ⚑
  • Vijay Manghnani, Ph.D. (SVP, Head of Risk and Analytics at the PIMCO ILS Fund and the Chief Risk Officer & Chief Actuary at Newport Re) 
  • Joss Matthewman, Ph.D. (Senior Director of Climate Change, RMS)
  • Scott Stransky, (Head of the MMC Cyber Risk Analytics Center of Excellence, Marsh McLennan)
  • Joseph Qiu, Ph.D., Session Organizer and Moderator (Director, Property Reinsurance Underwriting, Cincinnati Re and ARIA board member)

Capital markets play an increasingly important role in supplying capital to the insurance sector. One of the factors that explains this trend is the broader acceptance and utilization of catastrophe models by capital market participants. This panel will explore the relationship between modeling the emerging risks of today (cyber, climate change, etc.) and efficiency of capital deployment. It also examines the role that models can play in helping the risk-bearers of tomorrow manage risk, margin and return.

Presenters
avatar for Vijay Manghnani

Vijay Manghnani

(SVP, Head of Risk and Analytics at the PIMCO ILS Fund and the Chief Risk Officer & Chief Actuary at Newport Re), PIMCO ILS
Vijay Manghnani is the SVP, Head of Risk and Analytics at the PIMCO ILS Fund and the Chief Risk Officer & Chief Actuary at Newport Re. He is responsible for implementing state of the art science and analytics into PIMCO’s ILS trading and portfolio management strategy. Most recently... Read More →
avatar for Joss Matthewman

Joss Matthewman

Senior Director of Climate Change, RMS
Joss Matthewman recently rejoined RMS as Senior Director of Climate Change Product Management. Prior to this Joss was Head of Catastrophe Exposure Management at Hiscox, responsible for natural catastrophe, war, terror and political violence exposure management and reporting across... Read More →
avatar for Scott Stransky

Scott Stransky

Head of the MMC Cyber Risk Analytics Center of Excellence, Marsh McLennan
Scott Stransky is Managing Director and Head of the Cyber Risk Analytics Center of Excellence at Marsh McLennan. The Center was formed in mid-2021 to provide cyber modeling, thought leadership, and cyber analytics guidance across the MMC enterprise. Previously, he led the Cyber Modeling... Read More →
avatar for Joseph Qiu

Joseph Qiu

Director, Property Reinsurance Underwriting, Cincinnati Re; ARIA Board Member
Joseph Qiu is Director of Property Reinsurance Underwriting at Cincinnati Re, with a focus on treaty reinsurance partnership with global, national, regional and specialty carriers. Prior to Cincinnati Re, Joseph spent 10+ year at reinsurance brokerage, including Guy Carpenter and... Read More →


Monday August 2, 2021 9:15am - 10:30am EDT
General Session

10:45am EDT

1A Insurance Economics ⚑ (Moderator, James Garven, Baylor University)
Session 1A
Paper 1: 10:45-11:15
Paper 2: 11:15-11:45
Paper 3: 11:45-12:15

Monday August 2, 2021 10:45am - 12:15pm EDT
Room A

10:45am EDT

1A1 Insurance Bundling and Market Power
Authors: Sabrina Du, Saint Norbert College; Cameron Ellis, Temple University

Product bundling is a popular way for companies to retain their customers and keep up with fast-changing market demand. We examine how product bundling impacts the price elasticity for insurance products. We estimate a model of consumer demand for auto and homeowners' insurance using a random coefficients logit model. Our model incorporates flexible consumer preferences over companies' characteristics and ability to bundle their products. We exploit asymmetry in the impact of state insurance tax laws for identification.

Discussant
avatar for Martin Halek

Martin Halek

University of Calgary

Presenters
SD

Sabrina Du

Saint Norbert College



Monday August 2, 2021 10:45am - 12:15pm EDT

10:45am EDT

1A2 Asset-Driven Insurance Pricing
Benjamin Knox, Copenhagen Business School ; Jakob Sørensen, Copenhagen Business School

We develop a theory that connects insurance premiums, insurance companies' investment behavior, and equilibrium asset prices. Consistent with the model's key predictions, we show empirically that (1) insurers with more stable insurance funding take more investment risk and, therefore, earn higher average investment returns; (2) insurance premiums are lower when expected investment returns are higher, both in the cross section of insurance companies and in the time series. We show our results hold for both life insurance companies and, using a novel data set, for property and casualty insurance companies. Consistent findings across different regulatory frameworks helps identify asset-driven insurance pricing while controlling for alternative explanations.

Discussant
avatar for Cameron Ellis

Cameron Ellis

Temple University

Presenters
BK

Benjamin Knox

Copenhagen Business School



Monday August 2, 2021 10:45am - 12:15pm EDT

10:45am EDT

1A3 Asset-Liability Management of Life Insurers in the Negative Interest Rate Environment
Xun Zhang, Central University of Finance and Economics; Yijia Lin, University of Nebraska-Lincoln; Ken Seng Tan, Nanyang Technological University; Liu Sheen, Washington State University

This study investigates the asset–liability management (ALM) of life insurers in the markets with negative interest rates. Using a sample of Japanese life insurers between 1999 and 2018, we provide initial evidence that the negative interest rate environment produces a much more serious consequence on insurers than the positive interest rate environment. Given that duration and convexity are two common measures widely used by insurers to manage their assets and liabilities, we highlight that the assumption of flat yield curve underlying the traditional measures (e.g. the Macaulay and modified durations and convexities) is problematic when interest rates turn negative. To address this issue, we propose an ALM framework using the duration and convexity based on the Vasicek stochastic model. Our results show that the strategy based on the Vasicek model outperforms the strategy using the modified duration and convexity in the negative interest rate environment. Keywords: negative interest rate, Vasicek model, duration matching, convexity, asset–liability management.

Discussant
BK

Benjamin Knox

Copenhagen Business School

Presenters
avatar for Xun Zhang

Xun Zhang

Central University of Finance and Economics
Actuarial Science Ph.D. student



Monday August 2, 2021 10:45am - 12:15pm EDT

10:45am EDT

1B Risk Management & Firm Performance ⚑ (Moderator - Thomas Berry-Stoelzle, University of Iowa)
Session 1B
Paper 1: 10:45-11:15
Paper 2: 11:15-11:45
Paper 3: 11:45-12:15

Monday August 2, 2021 10:45am - 12:15pm EDT
Room B

10:45am EDT

1B1 Enterprise Risk Management and Corporate Tax Avoidance
Evan Eastman, Florida State University; Anne Ehinger, Florida State University, Jianren Xu, University of North Texas

This study examines the impact of enterprise risk management (ERM) programs on corporate tax avoidance. ERM is a holistic approach to managing an enterprise’s entire portfolio of risks (COSO 2004; 2017). We expect that enhanced coordination across business units as a result of ERM allows firms to exploit tax avoidance opportunities, while also mitigating overly aggressive tax positions. We hand-collect data on ERM adoption for a sample of S&P 500 firms from 1993 to 2016. We empirically document that firms with ERM programs have lower cash effective tax rates (ETRs) and are less likely to engage in tax shelter than non-ERM adopters. We instrument for ERM adoption using a firm’s exposure to natural catastrophes and our results are robust. Additionally, we find that the relation between ERM and tax avoidance is stronger among financially constrained firms and firms with higher managerial risk-incentives.

Discussant
avatar for Jingshu Luo

Jingshu Luo

Le Moyne College

Presenters
avatar for Evan Eastman

Evan Eastman

Florida State University
avatar for Jianren Xu

Jianren Xu

University of North Texas



Monday August 2, 2021 10:45am - 12:15pm EDT

10:45am EDT

1B2 Financial Constraints and Risk Management in Small and Medium-Sized Enterprises
Oliver Engist, Stockholm School of Economics; Emill Bustos, Stockholm School of Economics; Gustav Martinsson, Royal Institute of Technology, Stockholm; Christian Thoman, Royal Institute of Technology, Stockholm

We study the impact of financing constraints on small and medium firms’ risk management through insurance using panel data on 16,000 firms from a large Swedish insurance company. We combine the this data with administrative data and measure financing constraints using credit scores commonly used by banks and other lenders. We find that financially constrained firms purchase more insurance. A regression-discontinuity design supports that financing constraints influence firm’s demand for insurance. Our results are robust when using other measures of financing constraints and measures of insurance demand.
Keywords: Financial Constraints, Risk Management, Insurance Demand, Credit Scores, Unlisted Firms
JEL Codes: D22, D25, G22, G32

Discussant
avatar for Mu-Sheng Chang

Mu-Sheng Chang

California State University- Northridge

Presenters
EB

Emil Bustos

Stockholm School of Economics



Monday August 2, 2021 10:45am - 12:15pm EDT

10:45am EDT

1B3 Managerial Ability and the Success in Corporate Risk-Management: The Case of the Banking and Insurance Industry
Jingshu Luo, LeMoyne College; Rajiv Banker; Hyunjin Oh; Mutak Trepathi

Success in corporate risk management implies a firm can capture investment opportunities and minimize the adverse risks at the same time. In this paper, we study the impact of managerial ability on the success of corporate risk managements using the US banking and insurance industry. Using a two-stage Data Envelopment Analysis (DEA) approach, we quantify managerial ability in the two industries. Employing this measure, we find that high-ability managers take risks to grow their firms but they can also keep their realized risk low. In particular, we show that banks and insurers with higher managerial ability have more investment opportunities. To best use these opportunities, they take more ex ante financial risks by choosing greater leverage and lower capital surplus. At the same time, we find that high-ability mangers are good at integrating and managing risks. Insurers and banks with higher-ability managers are more able to keep the realized solvency risk and profitability risk low. These results show the importance of the managerial ability to the success of corporate risk management.

Discussant
EB

Emil Bustos

Stockholm School of Economics

Presenters
avatar for Jingshu Luo

Jingshu Luo

Le Moyne College



Monday August 2, 2021 10:45am - 12:15pm EDT

10:45am EDT

1C Financial Impact of Pandemics ⚑ (Moderator - Martin Eling, University of St. Gallen)
Session 1C
Paper 1: 10:45-11:15
Paper 2: 11:15-11:45
Paper 3: 11:45-12:15

Monday August 2, 2021 10:45am - 12:15pm EDT
Room C

10:45am EDT

1C1 The Financial Impact of COVID-19 on Publicly Traded Health Systems
Junying Zhao, University of Oklahoma Health Sciences Center; Tejas Ghirnikar, University of Oklahoma

How did the COVID-19 pandemic impact the healthcare industry? Us-ing 2015Q1–2020Q3 financial data of 26 publicly traded health systems, consisting of 11,322 hospitals and facilities, we find that the COVID-19pandemic shock is associated with large losses of revenue and profit, as well as increases in debt and cash holdings. Our time series analysis finds the trends of key financial indicators. After the pandemic onset, healthcare corporations’ financial viability and profitability worsen, while their liquidity and short-term debt grow in response to a gloomy and uncertain future. Our panel data analysis shows a 21.9% significant decrease in net operating revenue, a 16.9% significant increase in current liabilities, and an insignificant increase in long-term liabilities. Concurrent with these results, we find that an average healthcare corporation suffered $30.6 million significant losses in net income per quarter in 2020. The extent of the negative financial impact on providers varies with the CARES Act fiscal aid. The aid reduces the median provider’s revenue loss, funds some individual providers that incurred no revenue loss (e.g., Option Care Health Corp.) but does not fund others that suffered up to38.5% revenue loss (e.g., Magellan Health Corp.) and 56.4% profit loss (e.g., Encompass Health Corp.) in 2020Q2, compared to 2019Q2. With depleting temporary CARES Act aid and skyrocketing national debt, our results warn policymakers of the financial unviability of the healthcare industry, whose services are most needed during successive waves of the theCOVID-19 pandemic.

Discussant
avatar for Anastasia Ivantsova

Anastasia Ivantsova

University of Calgary

Presenters
JZ

Junying Zhao

University of Oklahoma Health Sciences Center



Monday August 2, 2021 10:45am - 12:15pm EDT

10:45am EDT

1C2 Effects of COVID-19 early release of pension funds: The case of Chile
Miguel Lorca, UNSW

Amid the extraordinary economic effects of COVID-19, some policymakers have turned to retirement savings accounts to support individuals in financial hardship. Given the haste, the long-term impacts and their distribution across the population have scarcely been analyzed. Using Monte Carlo simulations on the Chilean Social Protection Survey linked with administrative pension data, this study quantifies the effects of a 10% early release of pension funds. Considering the stipulated minimum and maximum amounts, this policy results in an average withdrawal of 22.91% from individual accounts. Each USD 1 withdrawn brings a 1.60 times higher loss in future retirement savings, reducing estimated monthly life annuity benefits by 7.27%. This policy raises income inadequacy and inequality in retirement: it would take 4.40% higher government expenditure to counteract these effects for retirees aged 65. Given the resulting increased pressure on welfare systems, we explore several alternatives to mitigate these effects and address the current challenges of most defined contribution pension schemes. Enforcing worker pension contributions and eliminating the related tax evasion show the biggest impacts. Providing incentives to delay retirement by at least one year or increasing contributions combined with an intra-generational solidarity component has a slightly lower effect.

Discussant
BK

Brad Karl

East Carolina University
Brad Karl the IIANC-NCSLA W. Kurt Fickling Distinguished Associate Professor in Risk Management & Insurance and the Chair of the Department of Finance & Insurance in the College of Business at East Carolina University. His research interests include distracted driving risk, medical... Read More →

Presenters
avatar for Miguel Lorca

Miguel Lorca

PhD Student, UNSW
Miguel is a third-year Ph.D. student in Economics at the University of New South Wales (UNSW). Before coming to UNSW, he received a Master and B.A. degree in Economics at the Universidad de Chile and worked at the Chilean Ministry of Finance for 7 years. Miguel researches in the fields... Read More →



Monday August 2, 2021 10:45am - 12:15pm EDT

10:45am EDT

1C3 Determinants of Early-Access to Retirement Savings: Lessons from the COVID-19 Pandemic
Junhao Liu, The University of Sydney; Isabella Dobrescu, UNSW Sydney; Ben Newell, UNSW Sydney; Susan Thorp, The University of Sydney; Hazel Bateman, CEPAR, UNSW, Sydney

Using data from a large Australian pension fund and the backdrop of the COVID-19 pandemic, we examine what drives peoples’ decisions to make early withdrawals of their retirement savings in financial hardship situations. The Australian COVID-19 Early Release Scheme allowed people immediate access to up to $A20,000 of their ‘preserved’ retirement savings in two rounds via a government website and without verification. We find that while the majority of survey respondents withdrew money for immediate consumption needs, a substantial proportion of them were concerned about future needs. Most withdrawers thought about the decision for less than a week, many appeared to use the $A10,000 per round limit as an anchor in choosing their withdrawal amount, and around 1/3 of respondents were either unsure or did not care about the long-term impact of their withdrawal. Conditional on eligibility, the probability of withdrawal was significantly higher where respondents (I) were more concerned about future needs, (ii) did not think about the long-term impact, and (iii) under-estimated or didn’t estimate at all the fall in their retirement savings. Our results suggest that many people who withdrew under the scheme did not fully understand the consequences of their choice and prompt the question as to whether the framing of ‘mandatory’ retirement savings as a means to finance retirement has been irrevocably damaged.

Discussant
JZ

Junying Zhao

University of Oklahoma Health Sciences Center

Presenters
avatar for Junhao Liu

Junhao Liu

Postdoctoral Research Associate, The University of Sydney



Monday August 2, 2021 10:45am - 12:15pm EDT

10:45am EDT

1D Healthcare & Insurance ⚑ (Moderator - Gene Lai, UNC Charlotte)
Session 1D
Paper 1: 10:45-11:15
Paper 2: 11:15-11:45
Paper 3: 11:45-12:15

Monday August 2, 2021 10:45am - 12:15pm EDT
Room D

10:45am EDT

1D1 Are Health Insurance Marketplace Plans Subsidized by Off-marketplace Plans?
Bo Shi, Morehead State University; Thomas Sager, University of Texas at Austin; Etti Baranoff, Virginia Commonwealth University; Dalit Baranoff, Johns Hopkins

Under the Affordable Care Act (ACA), health insurers voluntarily list qualified health plans on the marketplaces. Although marketplace plans are subject to rigorous regulatory coverage and rate requirements, the ACA requires that insurers use a single risk pool for both marketplace and off-marketplace plans when developing premiums. Instead of the marketplace plans premiums that are usually under the spotlight, our study focuses on off-marketplace private individual plan premiums. Nationwide individual plan Per Member Per Month (PMPM) premium experience of marketplace insurers is consistently higher than off-marketplace insurers and is as high as 23.19% by 2019 ($563 vs. $457). It is imperative to check whether off-marketplace individual plan policyholders paid higher premiums involuntarily as marketplace plans offered generous coverage at competitive rates. In other words, are marketplace plans subsidized by off-marketplace private plans? Our perspective is pertaining to the benefit of more than 7.28 million off-marketplace individual health plan policyholders by 2019.

Discussant
YS

Yoshihiko Suzawa

Professor, Kyoto Sangyo University

Presenters
BS

Bo Shi

Morehead State University



Monday August 2, 2021 10:45am - 12:15pm EDT

10:45am EDT

1D2 Financial Impact of Health Promotion Medical Insurance on Economic Solvency Ratio
Yoshihiko Suzawa, Kyoto Sangyo University; Takashi Tanaka, JMDC INC.; Katsuhiko Nagai, JMDC Inc.

The expansion of available health-related data enables insurers to provide a new insurance product called health promotion medical insurance that utilizes a risk evaluation index, such as health checkup results or walking distance. An insurer monitors a health indicator that is constructed from health checkup indices and offers a premium discount to an insured who accomplishes the designated level of that indicator. This mechanism is expected to provide an incentive for insured persons to be healthy and decrease insurance claims. This study aims to test whether the provision of health promotion medical insurance would fulfill this expectation and enforce the solvency of an insurer. We conduct a Monte Carlo simulation based on the economic solvency ratio by utilizing data from Japanese corporate medical insurance. From the analytical results, we observe that providing this insurance is to improve the solvency regardless of targeted age or gender categories of those insured and allow the insurer to offer premiums discounts or a bonus return with a sufficient amount to give an incentive to maintain an appropriate indicator level. The results also imply that active underwriting of this insurance will facilitate the sustainable health care system of society.

Discussant
JS

Joerg Schiller

University of Hohenheim

Presenters
YS

Yoshihiko Suzawa

Professor, Kyoto Sangyo University



Monday August 2, 2021 10:45am - 12:15pm EDT

10:45am EDT

1D3 A Re-examination of Racial Health Disparities in the United States: Blinder-Oaxaca (B-O) vs. Nonparametric Decomposition method
In Song, Hankuk University of Foreign Studies; Won Lee, University of Minnesota; Steve Ha, Western Carolina University

Prior studies use Blinder-Oaxaca (B-O) decomposition method to examine the racial health and healthcare disparities in the United States. However, B-O method assumes that characteristics of each observations are identical resulting in overestimating the components of the gap attributes. To overcome the limitations of B-O model, this paper proposes an alternative nonparametric decomposition approach using matching algorithm. By adopting this method, the differences in racial health and healthcare differences between two groups - Whites and Blacks - are nonparametrically estimated and decomposed into the portions explained and unexplained gap. Our results show that the nonparametric estimations are consistent with the parametric estimations yet nonparametric analysis results via matching are substantially more accurate.

Discussant
BS

Bo Shi

Morehead State University

Presenters
SH

Steve Ha

Western Carolina University



Monday August 2, 2021 10:45am - 12:15pm EDT

10:45am EDT

1E Annuities ⚑ (Moderator - Tice Sirmans, Illinois State University)
Session 1E
Paper 1: 10:45-11:15
Paper 2: 11:15-11:45
Paper 3: 11:45-12:15

Monday August 2, 2021 10:45am - 12:15pm EDT
Room E

10:45am EDT

1E1 Metamodeling for Variable Annuity Valuation What works and what does not
Xiaochen Jing, University of Wisconsin - Madison

Variable Annuities have become popular retirement products with various options of guarantees, but their complex design also make liability management a difficult task for insurers. There have been several dozen papers published in the past years on exploring the use of statistical learning and metamodeling approaches for Variable Annuity valuation and risk management in the quantitative finance and insurance literatures. However, they all focus on specific techniques in the context of synthetic data. In this paper, I investigate the effectiveness of metamodels with different experimental designs (sample selection methods) and metamodel forms (machine learning methods) in the context of a large set of empirical Variable Annuity contracts. In particular, I use textual analysis to extract value-related information from these contracts and develop a flexible and comprehensive simulation-based scheme for Variable Annuity valuation. I find that (1) real variable annuity contracts are very complex and their liabilities are difficult to evaluate. And (2) the overall performance of a metamodel depends on the employed machine learning methods as well as the sample size—though not substantially on the sampling method. Both improve performance at the cost of longer runtime.

Discussant
TM

Thorsten Moenig

Temple University

Presenters
XJ

Xiaochen Jing

University of Wisconsin - Madison



Monday August 2, 2021 10:45am - 12:15pm EDT

10:45am EDT

1E2 What matters in the annuitization decision?
Mohamad Hassan Abou Daya, Grenoble Ecole de Management; Carole Bernard, Grenoble Ecole De Management

We conduct a simultaneous test for several rational and behavioral factors which have been hypothesized to affect the uptake of life annuities on a sample of American individuals. In addition, we investigate whether analysts’ short-term stock market expectations affect the decision to annuitize retirement wealth. We provide evidence that the effect of such expectations depends on the level of trust in them. We attribute our findings to the availability heuristic and present bias. Our results provide guidance for policymakers and annuity providers as well as venues for future research.

Discussant
XJ

Xiaochen Jing

University of Wisconsin - Madison

Presenters
MH

Mohamad Hassan Abou Daya

Grenoble Ecole de Management
CB

Carole Bernard

Professor, Grenoble Ecole de Management



Monday August 2, 2021 10:45am - 12:15pm EDT

10:45am EDT

1E3 It's RILA Time: An Introduction to Registered Index-Linked Annuities
Thorsten Moenig, Temple University

Registered index-linked annuities (RILAs) are increasingly popular equity-based retirement savings products offered by U.S. life insurance companies. They combine features of fixed-index annuities and traditional variable annuities (TVAs), offering investors equity exposure with downside protection in a tax-deferred setting. This article introduces RILAs to the academic literature by describing the products' key features, developing a general pricing model, and deriving the providers' hedging strategy by decomposing their liabilities into short-term European options. Numerical illustrations show that RILAs offer investors similar risk profiles (in the long run) as TVAs, and that many products currently sold appear to be priced quite favorably for investors. For providers, RILAs may be a preferable alternative or complement to TVAs as they greatly simplify the management of the embedded equity risk and can naturally reduce the TVA capital requirements. These features position RILAs as a viable long-term solution for this product space.

Discussant
CB

Carole Bernard

Professor, Grenoble Ecole de Management

Presenters
TM

Thorsten Moenig

Temple University



Monday August 2, 2021 10:45am - 12:15pm EDT

12:15pm EDT

Break




Monday August 2, 2021 12:15pm - 1:00pm EDT

12:15pm EDT

Break Option: Textbooks and Professional Designations- The Institutes ⚑
Click here to visit live with Dave Thomas from The Institutes!

David P. Thomas, CPCU
The Institutes | Risk and Insurance Knowledge Group
720 Providence Road, Suite 100 • Malvern, PA 19355-3433
P (610) 644-2100 ext. 7698 | DD (484) 831-9086
TheInstitutes.org
Thomas@TheInstitutes.org


Monday August 2, 2021 12:15pm - 1:00pm EDT

12:15pm EDT

1:00pm EDT

2:15pm EDT

2A Healthcare & Public Policy ⚑ (Moderator - Cameron Ellis, Temple University)
Session 2A
Paper 1: 2:15-2:45
Paper 2: 2:45-3:15
Paper 3: 3:15-3:45

Monday August 2, 2021 2:15pm - 3:45pm EDT
Room A

2:15pm EDT

2A1 Tort Reform, Physician Remuneration Type, and Healthcare Expenditure
Yu Fang, Temple University; Martin Grace, Temple University

Though tort reform supporters argue that tort reform could reduce healthcare costs, states have witnessed an increasing healthcare cost after enacting some tort reform. This paper looks at physicians’ financial incentives to assess whether the effect of tort reform on the healthcare expenditure depends on physicians’ economic incentives proxied by their remuneration type. With the tort reform dataset and NAIC health insurer’s filing statement during the years 2001-2018, we explore the effect of four commonly studied tort reforms on health insurance losses incurred conditioning on the types of plan enrollment. Various plans indicate different physicians’ remuneration types. Our preliminary results suggest a changing effect of tort reform conditioning on the studying period and on the type of physician remuneration. For example, compared with HMOs, insurers with a higher indemnity enrollment have significantly lower losses incurred after a joint & several liability reform, suggesting a lower health expenditure in FFS is likely related to defensive medicine rather than financial incentives. Such effects exist in the period 2001-2013. The relation changes to the opposite in the period 2014-2018. The results partially explain the mixed results in the literature.

Discussant
CB

Christian Biener

University of St. Gallen

Presenters
avatar for Yu(Rainie) Fang

Yu(Rainie) Fang

Temple University
avatar for Martin F Grace

Martin F Grace

Temple University
Martin F. Grace has been an ARIA member since 1988 and has served or chaired on several committees during his membership. He is happy to be one of a number of ARIA past-Presidents!



Monday August 2, 2021 2:15pm - 3:45pm EDT

2:15pm EDT

2A2 Does Medicaid Make Private Health Insurance Cheaper?
Jonathan Holmes, Berkeley

Models of consumer choice and selection in health insurance markets typically focus on decisions within one market setting (e.g. choice of plans offered by an employer). This paper focuses on selection and choice at the broader level of health care markets, comparing Medicaid, employer sponsored insurance, and insurance exchanges. I study cross-market adverse selection in the context of the Affordable Care Act, which simultaneously expanded Medicaid while creating health insurance exchanges. Using state decisions to expand Medicaid and variation in federal reinsurance payments as identification, I find that Medicaid expansion reduced prices on individual health insurance exchanges by an average of $504 (9.7%) per person, per year. These price reductions on the individual market represent an indirect benefit of Medicaid expansion that is equal to 9% of the total costs of expansion, and increased enrollment of higher income individuals (above 400% of the Federal Poverty Level) on the individual market by 10%. JEL Codes: I13, I38, H51

Discussant
PS

Petra Steinorth

University of Hamburg

Presenters


Monday August 2, 2021 2:15pm - 3:45pm EDT

2:15pm EDT

2A3 Determinants and Consequences of Poor Decisions in Health Insurance
Lan Zou, University of St. Gallen; Christian Biener, University of St. Gallen

This paper aims at understanding decision patterns and welfare effects of poor decisions in health insurance conditional on a large set of sociodemographic characteristics. Using population representative survey data collected by the Swiss Federal government, we show that consumers, on average, lose approximately 400 CHF due to non-optimal choice. We identify high levels of heterogeneity, indicating that it is particularly the low-income share of the population that demands lower coverage and face high losses from non-optimal choice and that saliency of health issues (e.g., via the presence of long-term chronic diseases) increases the probability to chose optimal high-coverage coverage levels. Our results have implications for policy design of the Swiss mandatory health insurance system and beyond as it provides insights into the welfare consequences of non-optimal choice in general.

Discussant
Presenters
LZ

Lan Zou

University Of St.Gallen
CB

Christian Biener

University of St. Gallen



Monday August 2, 2021 2:15pm - 3:45pm EDT

2:15pm EDT

2B Catastrophic Risk- Transfers & ERM ⚑ (Moderator - Juan Zhang, Eastern Kentucky University)
Session 2B
Paper 1: 2:15-2:45
Paper 2: 2:45-3:15
Paper 3: 3:15-3:45

Monday August 2, 2021 2:15pm - 3:45pm EDT
Room B

2:15pm EDT

2B1 Innovative Risk Transfer Solution for Extreme Events
Marcel Freyschmidt, University of St. Gallen; Martin Eling, Institute of Insurance Economics; Alexander Braun, University of St. Gallen

We develop a microeconomic model of the decision-making problem faced by companies, (re)insurers, capital market and a sovereign government. We look at how different hedging strategies of (re)insurers affect the hedging of firms. Furthermore, we analyze how (and where) the government can influence an existing market equilibrium to protect taxpayers. We argue that the theory by Arrow and Lind (1970), according to which governments should evaluate projects from a risk-neutral perspective, does not necessarily apply to financially constrained countries. Especially the latter's budgets would benefit from a hedging model, which pays out exactly when the taxpayer suffers an enormous loss. Therefore, it helps avoid crowding out of government spending in other areas such as education, social security etc. as well as an excessive debt financing of stimulus packages.

Discussant
ST

Steve Taylor

Asst. Prof, NJIT

Presenters
avatar for Marcel Freyschmidt

Marcel Freyschmidt

University of St. Gallen
ME

Martin Eling

University of St. Gallen



Monday August 2, 2021 2:15pm - 3:45pm EDT

2:15pm EDT

2B2 Insurability of Pandemic Risks
Danjela Guxha; IVW University of St. Gallen; Hato Schmeiser, Institute of Insurance Economics, University of St. Gallen; Anastasia Kartasheva, IWV-University of St. Gallen; Helmut Grundl, Goethe University Frankfurt

The paper analyzes the scope for the private market for pandemic insurance and discusses the potential role of the financial market and the government. Building on a premise that pandemics are classified as catastrophic risks by the insurance industry, we start by providing a framework that explains theoretically how the catastrophe insurance supply and demand depend on the skewed and fat-tailed loss distributions and the co-movement between insurance stocks performance and the financial market. We use the model to estimate the supply of insurance for natural catastrophes. Then, by using the high-frequency data that tracks the economic impact of the COVID-19 pandemic in the US, we calibrate the loss distribution of a hypothetical insurance contract designed to alleviate the impact of the pandemic on small businesses and employment. The model of catastrophic insurance supply provides a calibration of the supply of pandemic insurance and allows us to compare it to other types of catastrophic insurance. Building on our estimation results, we discuss the scope for the risk transfer to the financial market and the role of the government. Keywords: pandemic insurance, catastrophe risk transfer, private-public partnerships JEL Codes: G22, G28, G32, J65, H84, Q54

Discussant
avatar for Hao Lu

Hao Lu

Assistant Professor, Saint Mary's University

Presenters
avatar for Anastasia Kartasheva

Anastasia Kartasheva

Associate Professor, University of St. Gallen
DG

Danjela Guxha

IVW- University of St. Gallen
avatar for Hato Schmeiser

Hato Schmeiser

Managing Director, University of St. Gallen, Institute of Insurance Economics



Monday August 2, 2021 2:15pm - 3:45pm EDT

2:15pm EDT

2B3 Enterprise Risk Management and Stock Market Reactions During the COVID-19 Pandemic
Hao Lu, University of Calgary; Anne Kleffner, University of Calgary; Hai Wang, St. Mary's University; Liu Xiaoyu, St. Mary's University

This research investigates whether enterprise risk management (ERM) increased firm stock market returns and reduced volatility of returns during the COVID-19 crisis. We argue that the adoption of ERM can increase confidence in the firm’s resiliency to external shocks, resulting in higher stock market returns and lower volatility. We use the machine learning technique, i.e., the LDA algorithm, and use corporate annual reports to identify whether firms have adopted ERM. Our preliminary results, using a random sample of 1468 US firms, indicates that ERM firms have a smaller reduction in abnormal returns (AR) during the recession period of COVID-19 (the first quarter of 2020 when the stock market crashed) and a larger increase in AR during the recovery period (the second and the third quarters of 2020 when the stock market recovered from the crash). We do not find a significant impact of ERM on stock return volatility with our preliminary data.

Discussant
ME

Martin Eling

University of St. Gallen

Presenters
avatar for Hao Lu

Hao Lu

Assistant Professor, Saint Mary's University
avatar for Anne Kelffner

Anne Kelffner

Professor and Chair, Insurance and Risk Management, University of Calgary
Dr. Anne Kleffner, PhD is Professor and Chair, Insurance and Risk Management at the Haskayne School, University of Calgary. Dr. Kleffner 's research interests include enterprise risk management, insurance regulation, and the relationship between ESG (environmental, social and governance) performance... Read More →



Monday August 2, 2021 2:15pm - 3:45pm EDT

2:15pm EDT

2C Estimations & Stimulations ⚑ (Moderator - Jill Bisco, The University of Akron)
Session 2C
Paper 1: 2:15-2:45
Paper 2: 2:45-3:15
Paper 3: 3:15-3:45

Monday August 2, 2021 2:15pm - 3:45pm EDT
Room C

2:15pm EDT

2C1 Availability of the Gig Economy and Long Run Labor Supply Effects for the Unemployed
Emilie Jackson, National Bureau of Economic Research (NBER)

A growing number of American workers earn income through platforms in the gig economy which provide access to flexible work (e.g. Uber, Lyft, TaskRabbit). This major labor market innovation presents individuals with a new set of income smoothing opportunities when they lose their job. I use US administrative tax records to measure take up of gig employment following unemployment spells and to evaluate the effect of working in the gig economy on workers' overall labor supply, skill acquisition, and earnings trajectory. To do so, I utilize penetration of gig platforms across counties over time, along with variation in individual-level predicted propensities for gig work based on pre-unemployment characteristics. In the short run, I show an increase in gig work following an unemployment spell and that individuals are correspondingly better able to smooth the resulting drop in income. However, individuals stay in these positions and are less likely to return to traditional wage jobs. Thus, several years later, prime-age (25-54) workers' income lags significantly behind comparable individuals who did not have gig work available. Among older workers (55+), I find an increase in gig work corresponds to a postponement of Social Security retirement benefits and a reduction in receipt of Social Security Disability Insurance (SSDI).

Discussant
JH

James Hilliard

Temple University

Presenters
EJ

Emilie Jackson

National Bureau of Economic Research (NBER)



Monday August 2, 2021 2:15pm - 3:45pm EDT

2:15pm EDT

2C2 Attributes-Based Conjoint Analysis of Landowner Preferences for Standing Timber Insurance
Yiling Deng, University of Central Arkansas

There is a growing interest in developing standing timber insurance market because of natural catastrophes and climate change, yet private forests are rarely insured worldwide. Landowner preferences for standing timber insurance multiple attributes are essential to study the insurance demand. We use conjoint analysis to elicit the preferences and measure the importance and willingness-to-pay (WTP) of attribute levels. We find insurance premium is the most relative important attributes, followed by insurance coverage and deductible. The WTP for the broadest insurance coverage and the lowest deductible can be as high as $2.54 per $1000 and $1.89 per $1000 respectively. We identify four market segments corresponding to landowner preferences: (a) premium desirer who are price sensitive; (b) provider pickers who prefer government providing insurance; (c) coverage seekers who concern perils insured most; and (d) balanced buyers who consider price, deductible and coverage equally. The study provides useful information on the demand of standing timber insurance and allow the market to design policies according to better meets landowners’ needs.

Discussant
EJ

Emilie Jackson

National Bureau of Economic Research (NBER)

Presenters
YD

Yiling Deng

Assistant Professor, University of Central Arkansas



Monday August 2, 2021 2:15pm - 3:45pm EDT

2:15pm EDT

2C3 Risk-Taking At the Margins: Evidence from Simulated Auto Racing
James Hilliard, Temple University; David Weber, Northern Arizona University; Annette Hofmann, St. John's University

Using a unique dataset containing over 56,000 simulated auto races spanning two years, we analyze risk taking and risk preferences of participants, in particular at the margins. We find that when there are kinks in the “wealth” function, players take less risk given opportunities to increase wealth at a kink and take more risk when given opportunities to lose wealth at a kink. We also explore other potential research topics available with this rich dataset.

Discussant
DP

David Pooser

St. John's University

Presenters
JH

James Hilliard

Temple University



Monday August 2, 2021 2:15pm - 3:45pm EDT

2:15pm EDT

2D Risk & Utility ⚑ (Moderator - Charles Yang, Florida Atlantic University)
Session 2D
Paper 1: 2:15-2:45
Paper 2: 2:45-3:15
Paper 3: 3:15-3:45

Monday August 2, 2021 2:15pm - 3:45pm EDT
Room D

2:15pm EDT

2D1 No-Betting Pareto Optima under Rank-Dependent Utility
Mario Ghossoub, University of Waterloo; Tim Boonen, University of Amsterdam

In a pure-exchange economy with no aggregate uncertainty, we characterize in closed-form and in full generality Pareto-optimal allocations between two agents who maximize rank-dependent utilities (RDU). We then derive a necessary and sufficient condition for Pareto optima to be no-betting allocations (i.e., deterministic allocations - or full insurance allocations). This condition depends only on the probability weighting functions of the two agents, and not on their (concave) utility functions. Hence with RDU preferences, it is the difference in probabilistic risk attitudes given common beliefs, rather than heterogeneity or ambiguity in beliefs, that is a driver of trade. As by-product of our analysis, we answer the question of when sunspots matter in this economy.

Discussant
avatar for Marc Ragin

Marc Ragin

University of Georgia

Presenters
MG

Mario Ghossoub

University of Waterloo
TB

Tim Boonen

University of Amsterdam



Monday August 2, 2021 2:15pm - 3:45pm EDT

2:15pm EDT

2D2 The effect of insurance on pricing strategies and fraud in markets for repair goods
Elisabeth Stoeckl, LMU; Andreas Richter, LMU; Jörg Schiller, Hohenheim University

Incomplete insurance contracts and imperfect competition between suppliers lead to price increases and overcharging bills in repair and healthcare markets. We use a theoretical model to study the effect of insurance and claims auditing on pricing and overcharging in markets for repair goods. We focus our analysis on oligopolistic repair markets where suppliers determine the prices for their goods, insured consumers do not know what treatment they need and therefore require the recommendation of a repair firm, and insurers may audit suspicious claims to detect overcharging recommendations. Our results indicate that a small coinsurance rate on the side of consumers results in high and treatment-specific repair prices, frequent audits, and occasional overcharging. A high coinsurance rate comes along with insurers foregoing audits and a constant average price for different repair treatments. On the one hand, claims auditing prevents a general overpaying of consumers with minor damages and deters repair firms from permanent overcharging. On the other hand, claims auditing leads to a welfare loss due to audit costs and penalties for repair firms.

Discussant
SH

Sebastian Hinck

University of Hamburg

Presenters


Monday August 2, 2021 2:15pm - 3:45pm EDT

2:15pm EDT

2D3 A Model of Anchoring and Adjustment for Decision-Making under Risk
Johannes Jaspersen, Ludwig-Maximilians-Universität München; Marc Ragin, University of Georgia

We introduce a simple model of anchoring and adjustment for decision-making under risk. The model can be applied to both discrete and continuous lotteries and in the discrete case leads to behavior that is observationally equivalent to expected utility maximization with probability weighting. The resulting decision model is conceptually similar to prospect theory, but differs from the established models in key aspects. We apply the anchoring model to several choice anomalies commonly observed in decisions under risk and show that it can explain both Allais paradoxes, the St. Petersburg paradox, event-splitting effects and the effect of probability in the fourfold pattern of risk attitudes. We also apply the model to equity premiums and show that in combination with a myopic evaluation process, it implies higher equity premiums than expected utility theory, especially when equity returns are negatively skewed. Using historical data on asset returns, we show that the model can solve the equity premium puzzle for reasonable combinations of preference parameters.

Discussant
TB

Tim Boonen

University of Amsterdam

Presenters
JJ

Johannes Jaspersen

Ludwig-Maximilians-Universität München
avatar for Marc Ragin

Marc Ragin

University of Georgia



Monday August 2, 2021 2:15pm - 3:45pm EDT

2:15pm EDT

2E International ⚑ (Moderator - Mark Browne, St. John's University)
Session 2E
Paper 1: 2:15-2:45
Paper 2: 2:45-3:15
Paper 3: 3:15-3:45

Monday August 2, 2021 2:15pm - 3:45pm EDT
Room E

2:15pm EDT

2E1 Sustainable Investing in the US and European Insurance Industry: A Text Mining Analysis
Philipp Reichel, Friedrich-Alexander University Erlangen-Nürnberg; Nadine Gatzert, Friedrich-Alexaner University Erlangen-Nürnberg

Sustainable investing has become increasingly relevant in the last years, mainly driven by environmental, social and governance (ESG) concerns as well as regulation and public initiatives. In this paper, we study the development of the awareness and relevance of sustainable investing in the European and US insurance industry in detail as reflected in their reports. The sample consists of 727 annual, sustainability- and investment-related reports and documents of 55 firms from 2013 to 2017. Our text mining approach shows an increasing awareness of sustainable investing over the last years as reflected in the insurers’ reports. Impact investing and ESG integration are the most important strategies during the sample period, especially for life & health insurers, while screening strategies are less referenced (and mostly by P&C insurers). Furthermore, while the ranking of terms and strategies is overall similar in the US and European sample, European insurers report much more extensively about sustainable investing, also in their annual reports. Finally, we observe a strong increase in the relative importance of sustainable investment approaches in terms of the proportion of word count relative to the total number of words in reports as well as investment references.

Discussant
JZ

Jian Zhang

Temple University

Presenters
PR

Philipp Reichel

Friedrich-Alexander University Erlangen-Nürnberg



Monday August 2, 2021 2:15pm - 3:45pm EDT

2:15pm EDT

2E2 Captive Insurance, Income Stability, and Firm Performance: Evidence from S&P Europe 350 Companies
Mu-Sheng Chang, California State University, Northridge; Jiun-Lin Chen, Valparaiso University; Harold Weston, Georgia State University

We examine the use of captive insurance among S&P Europe 350 companies, evaluating the effects of establishing a captive insurance subsidiary on income stability and profitability. The efficiency of risk management via captives implies that they help firms improve cash flow. The European Union (EU) differs from the United States (U.S.) because the former tends to regulate captives in a more uniform, enhanced regulatory environment. With captives present in thirty-five percent of all firm-years 2000 through 2017, our analysis provides evidence that firms with captives formed during this sample period deliver better financial outcomes as measured by ROA. Additional results show that captives do not contribute to stabilized income. This study also verifies that S&P Europe 350 firms with captives are not characterized by lower levels of cash holdings, intangible assets, and capital expenditures—three firm attributes observed in the existent studies on captives in the U.S. Overall, our study suggests a positive relationship between captive use and ROA for firms with captives formed in the 2000s, pointing out different characteristics between firms with captives created before and after 2000 as well as between S&P Europe 350 and S&P 500 companies with captives.

Discussant
avatar for Kylie Braegelmann

Kylie Braegelmann

Institute for Health Care & Public Management, University of Hohenheim

Presenters
avatar for Mu-Sheng Chang

Mu-Sheng Chang

California State University- Northridge



Monday August 2, 2021 2:15pm - 3:45pm EDT

2:15pm EDT

2E3 The Impact of a Commission Cap: Evidence from the German private health insurance market
Kylie Braegelmann, Institute for Health Care & Public Management, University of Hohenheim; Joerg Schiller, University of Hohenheim

In the German market for private substitutive health insurance, new business is very limited and brokers have significant market power. As a result, commissions paid to brokers were high, leading also the industry to request regulatory action. A goal of the reform was to dampen acquisition costs. In 2012, commissions for substitutive private health insurance were capped at 9 monthly premiums and a broker cancellation liability period was introduced. We use panel data on German insurers from 2007 to 2018 to analyze the consequences of the commission cap. We provide evidence that the cap did not lead to the intended effect, as the cap did not affect relative acquisition costs and acquisition costs per new contract. Furthermore, we find some evidence that the reform led to a decrease in new business in the substitutive market, while total acquisition costs remained stable over time.

Discussant
PR

Philipp Reichel

Friedrich-Alexander University Erlangen-Nürnberg

Presenters
JS

Joerg Schiller

University of Hohenheim
avatar for Kylie Braegelmann

Kylie Braegelmann

Institute for Health Care & Public Management, University of Hohenheim



Monday August 2, 2021 2:15pm - 3:45pm EDT

4:00pm EDT

Translational Research and Talent Development: Exploring Opportunities for Industry and Academic Alignment ⚑
This industry / academic panel of leaders creates a unique opportunity for discussion around: information gaps, issues that will be shaping future industry needs, & inform opportunities for translational research. Academics will have an opportunity to better understand& how they can help industry & society. Industry can share information about talent needs as well as discuss the sharing of industry data to inform research. Further, it is a rich opportunity as C-level leaders are consumers of ARIA academics’ instructional work (via recruitment of college graduates).

Presenters
avatar for Martin F Grace

Martin F Grace

Temple University
Martin F. Grace has been an ARIA member since 1988 and has served or chaired on several committees during his membership. He is happy to be one of a number of ARIA past-Presidents!
avatar for Patty Born

Patty Born

Florida State University
Dr. Patricia Born is the Midyette Eminent Scholar in Risk Management and Insurance in the Department of Risk Management/Insurance, Real Estate and Legal Studies at Florida State University’s College of Business. She also serves as advisor of the Risk Management and Insurance doctoral... Read More →
avatar for Anne Kelffner

Anne Kelffner

Professor and Chair, Insurance and Risk Management, University of Calgary
Dr. Anne Kleffner, PhD is Professor and Chair, Insurance and Risk Management at the Haskayne School, University of Calgary. Dr. Kleffner 's research interests include enterprise risk management, insurance regulation, and the relationship between ESG (environmental, social and governance) performance... Read More →
avatar for Anthony J. Kuczinski

Anthony J. Kuczinski

President & Chief Executive Officer, Munich Re US Holding
Tony Kuczinski is president and chief executive officer of Munich-American Holding Corporation, chair of Hartford Steam Boiler Group, Inc., and chair of American Modern Insurance Group, Inc.  He has overall responsibility for Munich Re’s property and casualty reinsurance and specialty... Read More →
avatar for Ty Leverty

Ty Leverty

University of Wisconsin-Madison
Tyler Leverty is an Associate Professor in the Department of Risk and Insurance at the University of Wisconsin-Madison. He holds the Gerald D. Stephens CPCU Distinguished Chair in Risk Management and Insurance.  He is a Senior Editor of the Journal of Risk and Insurance, the current... Read More →
avatar for John C. Roche

John C. Roche

President & Chief Executive Officer, The Hanover Insurance Group
An accomplished leader and highly experienced senior executive with more than 30 years of experience in the property and casualty industry, Jack was appointed president and chief executive officer of The Hanover in October 2017.Since joining the company in 2006, Jack has served in... Read More →
avatar for Peter L. Miller, MBA, CPCU

Peter L. Miller, MBA, CPCU

President and CEO, The Institutes
Peter L. Miller is president and chief executive officer of The Institutes and a member of The Institutes’ Senior Management Team. He chairs the CPCU Society Board of Directors, the Griffith Insurance Education Foundation Board of Directors and The Institutes RiskStream Collaborative... Read More →


Monday August 2, 2021 4:00pm - 5:15pm EDT
General Session

5:30pm EDT

Networking Event ⚑
Join us to relax and enjoy conversation and connection as we conclude the first day of the ARIA conference.
Grab your signature cocktail such as Earthquake, Hurricane, Lava Flow, or Dark n Stormy a beer, glass of wine or soft drink, and come enjoy a casual reception to meet new people and connect with friends and colleagues.
Our Emcee, Richard Peter, will set the stage for our time together -- you won't want to miss it.

The drinks mentioned are hyperlinked to recipes!


Presenters
RP

Richard Peter

University of Iowa



Monday August 2, 2021 5:30pm - 6:30pm EDT
General Session
 
Tuesday, August 3
 

9:00am EDT

3A Cyber / Technology ⚑ (Moderator - Ben Collier, Temple University
Session 3A
Paper 1: 9:00-9:30
Paper 2: 9:30-10:00
Paper 3: 10:00-10:30

Tuesday August 3, 2021 9:00am - 10:30am EDT
Room A

9:00am EDT

3A1 An empirical analysis of cyber risk data and development of cyber risk scenarios Cybersecurity, Hacking and Technology and an illustration of a Cyber Risk Model
Madhu Acharyya, Glasgow Caledonian University, London; John Houston, University of Stirling

In this paper we propose a game-theoretic cybercrime model and test the management of cybercrime risk by Organizations. We apply the concept of expected utility theory to explain the behaviour of hackers and defensive decision-making by the managers in the presence of risk and uncertainty. It is evident that in many occasions the hackers are bound to be at least partially successful and the risk mitigation through technological solutions alone cannot eliminate cyber risk completely. This is because the hackers hold superior knowledge and skill on modern technology and sophisticated skill than the Organisations’ managers. The hackers are always able to develop alternative ways to hack the online systems whatever sophisticated technology is used to mitigate cyber risk. Moreover, the Organisations often operate under practical constraints (either economic, e.g., budget or control/governance) to manage their cyber-risk exposures. Furthermore, the technological solutions are temporary as hackers change their positions, strategy and techniques very frequently making management of cyber risk even harder for the Organisations. Consequently, it is important to analysis the hacker motivations and operational strategy of the hackers from the perspective of behavioural economics.

Discussant
KJ

Kwangmin Jung

POSTECH (Pohang University of Science and Technology)

Presenters
avatar for Madhu Acharyya

Madhu Acharyya

Senior lecturer and programme leader, Glasgow Caledonian University, London
JH

John Houston

University of Stirling



Tuesday August 3, 2021 9:00am - 10:30am EDT

9:00am EDT

3A2 A Token Design for Decentralized Insurance on the Blockchain
Niklas Haeusle, University of St. Gallen; Alexander Braun, University of St. Gallen; Stephan Karpischek, Decentralized Insurance Foundation

We propose a mechanism for the incentivization of workers in decentralized autonomous organizations instantiated on the blockchain. Our approach relies on staking, a digital form of collateralization that requires network participants to acquire cryptographic tokens and deposit them in a smart contract or bound wallet. In case of worker malfeasance, the collateral can be reallocated to the customers to compensate them for their losses. We use the nascent decentralized insurance market as a laboratory to apply our model based on real-life data and show that relatively small stakes are sufficient to maximize network throughput, which is equivalent to welfare.

Discussant
ML

Minha Lee

Sungkyunkwan University

Presenters
NH

Niklas Haeusle

University St. Gallen
AB

Alexander Braun

University of St. Gallen



Tuesday August 3, 2021 9:00am - 10:30am EDT

9:00am EDT

3A3 Unraveling heterogeneity in cyber risks using quantile regressions
Kwangmin Jung, POSTECH (Pohang University of Science and Technolkogy); Jeungbo Shim, University of Colorado-Denver; Martin Eling, Institute of Insurance Economics

This paper discusses two important issues in the cyber-insurance market: 1) adequate cyber-insurance pricing and 2) claims calculation of data breach events, which are the main type of risk covered by cyber-insurance policies. We use quantile regressions to consider heterogeneous firm-specific effects over different loss quantiles with one of the largest cyber risk databases offering both the total economic loss amount and the number of breached records. We identify that the firm size is a key factor in cyber-insurance pricing; a size effect of the breached records is also present in claims calculation with higher cost per record for small-sized loss events. The coefficients of key variables at extreme quantiles show on average 37.8% deviation from those of the OLS fit, implying that cyber losses are heterogeneous in their impacts and cyber insurers need to adapt this heterogeneity in pricing cyber policies. We consider this heterogeneity in the application to pure premium calculation in comparison with a two-part GLM and the Tweedie model. Our approach and findings are material for cyber insurers and policymakers, who aim to assess the impacts of firm-specific factors in insurance pricing and claims calculation.

Discussant
JH

John Houston

University of Stirling

Presenters
KJ

Kwangmin Jung

POSTECH (Pohang University of Science and Technology)
ME

Martin Eling

University of St. Gallen



Tuesday August 3, 2021 9:00am - 10:30am EDT

9:00am EDT

3B Accounting & Firm Decisions ⚑ (Moderator - David Eckles, University of Georgia
Session 3B
Paper 1: 9:00-9:30
Paper 2: 9:30-10:00
Paper 3: 10:00-10:30

Tuesday August 3, 2021 9:00am - 10:30am EDT
Room B

9:00am EDT

3B1 Fair Value versus Non-fair Value Discretion and Auditor Size
Bohan Song, Tulane University

The audit of other-than-temporary-impairment (OTTI) is a challenging task, and persistent audit deficiencies have been identified in this area. Managers can avoid recognizing an OTTI loss on investment securities through two different methods: (1) using the discretion over fair value measurements to inflate the fair value over amortized costs, and (2) exercising the discretion over non-fair value judgment to classify the decline of fair values as temporary. I exploit security-level disclosures in the insurance industry to explore auditors’ role in insurers’ choice between using the two types of discretion to avoid OTTI. Employing within-security analyses, I find that insurers engaging larger auditors, measured as Big 4 and national-level industry specialist auditors are more (less) likely to use non-fair value (fair value) discretion to avoid OTTI and this effect is stronger when insurers have a greater OTTI avoidance incentive. These results appear to be driven by larger auditors’ comparative advantage in the audit of fair value measurements due to their increased access to fair-value-related resources at the national level. This study sheds fresh light on the auditors’ role in managers’ choice between different discretionary options to manage a critical accounting estimate.

Discussant
SG

Steve Guo

Ball State University

Presenters
avatar for Bohan Song

Bohan Song

Tulane University



Tuesday August 3, 2021 9:00am - 10:30am EDT

9:00am EDT

3B2 When gambling for resurrection is too risky
Divya Kirti, International Monetary Fund

The financial crisis pushed some large financial institutions to the brink of insolvency. Instead of gambling for resurrection, financial institutions in severe distress pulled back from risk taking, becoming systematically less willing to take on risky incremental investments than institutions with low default probabilities. Regulatory constraints alone cannot explain these findings: institutions in distress reduced risk even within investment opportunities with identical regulatory treatment. These findings suggest that risk shifting incentives do not necessarily dominate for large financial institutions. Actions that clarify ongoing survival, like stress tests, may be needed to support risk appetite during crises. JEL codes: G22, G21, G32, G28

Discussant
avatar for Bohan Song

Bohan Song

Tulane University

Presenters
avatar for Divya Kirti

Divya Kirti

International Monetary Fund



Tuesday August 3, 2021 9:00am - 10:30am EDT

9:00am EDT

3B3 Patterns and Anomalies of Loss Development in P&C Insurance Market
Steve Guo, Ball State University; Arthur Charpentier, Université du Québec à Montréal; Michael Ludkovski, University of California, Santa Barbara

We analyze loss development in NAIC Schedule P loss triangles using functional data analysis methods. Relying on robust principal component analysis (RPCA), we study the incremental loss ratio curves of workers’ compensation lines across hundreds of companies and 24 years. RPCA helps us to find out patterns of loss development, including (i) identifying outlier loss triangles; (ii) providing a dimension reduction tool to interpret the functional loss development data via a few factors. As one example of a relevant insight, we document distinctive loss development patterns between the late 1980s, 1990s and late 2000s periods. Moreover, our approach provides novel visualization tools. In the latter part of the article, we propose a functional model for generating probabilistic forecasts of incomplete cumulative loss ratio curves based on historical and similar development patterns.

Discussant
TS

Tianxiang Shi

Temple University

Presenters
SG

Steve Guo

Ball State University



Tuesday August 3, 2021 9:00am - 10:30am EDT

9:00am EDT

3C Insurance Economics ⚑ (Moderator - Tim Boonen, University of Amsterdam)
Session 3C
Paper 1: 9:00-9:30
Paper 2: 9:30-10:00
Paper 3: 10:00-10:30

Tuesday August 3, 2021 9:00am - 10:30am EDT
Room C

9:00am EDT

3C1 Why People Buy Insurance: A Modern Answer to an Old Question
Markus Fels, TU Dortmund

I revisit the question of which motive underlies insurance demand. I draw on the literature of state-dependent utility and on the literature of imperfectly divisible consumption to argue that the general purpose of insurance is not a risk transfer, but meeting a conditional need. In this way, insurance aligns the risk in one’s financial endowment with the risk in one’s financial needs. I discuss how this understanding of insurance extends the traditional view of insurance and I show how this extension has implications for our discipline’s research agenda and policy advice.

Discussant
KK

Kyungsun Kim

Institute of Finance and Banking, Seoul National University

Presenters
avatar for Markus Fels

Markus Fels

IfM Bonn



Tuesday August 3, 2021 9:00am - 10:30am EDT

9:00am EDT

3C2 The Impact of Counterparty Risk on the Basis Risk of Industry Loss Warranties and on (Collateralized) Reinsurance under (Non-)Linear Dependence Structures
Heike Bockius, Friedrich-Alexander University Erlangen-Nürnberg; Nadine Gatzert, Friedrich-Alexander University Erlangen-Nürnberg

As a consequence of alternative risk transfer’s increasing relevance, industry loss warranties and collateralized reinsurance are today prevalent alternatives and supplements to traditional reinsurance. While the higher counterparty risk of new, partially unrated protection sellers can be mitigated via the provision of collateral, collateralization also limits the market penetration of risk transfer instruments. Furthermore, index-based industry loss warranties involve basis risk as an additional risk factor to counterparty risk. The aim of this paper is to investigate how counterparty risk affects the basis risk of industry loss warranties as well as reinsurance with and without collateral and the insurer’s solvency ratio, respectively. Toward this end, we extend existing literature by allowing for the (partial) default of both reinsurance and industry loss warranties under different (non-)linear dependence structures. The analysis shows that the impact of counterparty risk on the hedging effectiveness of industry loss warranties is particularly pronounced for higher degrees of dependencies and tail dependent losses, i.e. in cases of basis risk levels that appear low if counterparty risk is not considered. Additionally, already partial collateralization limits counterparty and basis risk to more acceptable levels.

Discussant
avatar for Markus Fels

Markus Fels

IfM Bonn

Presenters
avatar for Heike Bockius

Heike Bockius

Friedrich-Alexander University Erlangen-Nürnberg



Tuesday August 3, 2021 9:00am - 10:30am EDT

9:00am EDT

3C3 Product differentiation and corporate demand for insurance in a duopoly model
Kyungsun Kim, Institute of Finance and Banking, Seoul National University; S. Hun Seog, Seoul National University Business School; Jimin Hong, Soongsil University

This study develops a duopoly model with quality and price competition, and investigate the corporate demand for insurance. Our model predicts asymmetric strategic effects of insurance for two firms with different qualities, because the increases in the quality of each firm have opposite effects on the intensity of price competition. We show that low-quality firm has positive strategic effect of insurance, and might purchase insurance, whereas high-quality firm has negative strategic effect of insurance and never purchases insurance if firms are risk-neutral. When firms are risk-averse, however, high-quality firm might also purchase insurance if the cost of risk is sufficiently large, so that the benefit of insurance exceeds the sum of the strategic effect and the cost of insurance. We show that the availability of insurance might raise the quality levels of both firms.

Discussant
avatar for Heike Bockius

Heike Bockius

Friedrich-Alexander University Erlangen-Nürnberg

Presenters
KK

Kyungsun Kim

Institute of Finance and Banking, Seoul National University



Tuesday August 3, 2021 9:00am - 10:30am EDT

9:00am EDT

3D Insurance Demand ⚑ (Moderator - Yu Lei, University of Hartford)
Session 3D
Paper 1: 9:00-9:30
Paper 2: 9:30-10:00
Paper 3: 10:00-10:30

Tuesday August 3, 2021 9:00am - 10:30am EDT
Room D

9:00am EDT

3D1 The Demand for Automobile Insurance: Evidence from Underserved Areas in California
Rob Hoyt, University of Georgia; Tommy Stith, Florida State University

Automobile insurance availability is a serious issue for motorists, regulators and the insurance industry. The costs imposed on the system by uninsured motorists are not trivial. In order to minimize these costs it is necessary to understand the factors that lead motorists to drive without insurance. This paper uses data reported to the California Department of Insurance, as well as demographic data collected at the ZIP code level, to analyze the demand for auto insurance in areas that the California Department of Insurance has designated as underserved. The results show that areas – as measured by ZIP codes – that are saddled with high poverty and areas that are predominately urban are more likely to have lower demand for automobile insurance. However, the fact that a certain area is predominately minority does not alone make it more likely to exhibit lower demand for automobile insurance.

Discussant
CW

Cheng Wan

CEPAR, UNSW Sydney

Presenters
avatar for Rob Hoyt

Rob Hoyt

Moore Chair and Department Head, University of Georgia
Robert E. Hoyt is the Dudley L. Moore, Jr. Chair and Professor of Risk Management and Insurance in the Terry College of Business at the University of Georgia. He teaches corporate risk management and enterprise risk management and has served as the Department Head for Insurance, Legal... Read More →



Tuesday August 3, 2021 9:00am - 10:30am EDT

9:00am EDT

3D2 The demand for longevity, health and long-term care insurance after COVID-19
Cheng Wan, CEPAR, UNSW Sydney; Hazel Bateman, CEPAR, UNSW Sydney; Katja Hanewald, UNSW Sydney, School of Risk & Actuarial Studies; Hanming Fang, University of Pennsylvania and Shanghai Tech University

We conduct an online experimental survey to elicit and analyse preferences for bundled longevity, health and long-term care insurance products in China after the COVID-19 outbreak. Our sample consists of 1,000 respondents who completed an online experimental survey in Aug-Sep 2020. We designed two main experimental tasks to elicit the preferred allocation of retirement financial assets between a savings account, a life annuity, critical illness insurance and long-term care insurance. We collect several variables measuring the effects of COVID-19 including virus infection experience in an immediate social environment, mental stress due to the virus, risk taking behaviours since lockdown easing, insurance purchase behaviours, changes in income and savings, and worries about economy. We also collect a comprehensive array of covariates including preferences, financial competence and other demographic and socio-economic factors. We provide the first empirical evidence of the interaction between stated preferences for longevity, health and long-term care insurance products. We also test how the stated product demand is influenced by different product attributes. Overall, this study documents how COVID-19 has impacted retirement planning and preferences for retirement risk management. Findings inform the development of retirement products in China and other developing economies facing population ageing and incomplete insurance markets.

Discussant
avatar for Jianren Xu

Jianren Xu

University of North Texas

Presenters
avatar for Katja Hanewald

Katja Hanewald

Senior Lecturer, UNSW Sydney, School of Risk & Actuarial Studies
CW

Cheng Wan

CEPAR, UNSW Sydney



Tuesday August 3, 2021 9:00am - 10:30am EDT

9:00am EDT

3D3 Does Investment-Induced Stress Drive Demand for Health Insurance?
Jainren Xu, University of North Texas; Yu Shen, Southwestern University of Finance and Economics; Xian Xu, Fudan University

The volatile stock market leads to substantial mental stressors among investors that adversely affect their health. Using proprietary transaction-level, high-frequency data from a large insurance company, we find that daily stock market fluctuations drive the contemporaneous sales of new health insurance policies and the sales increase with similar magnitudes when the market rises or declines. We also find that the effect of market fluctuations on insurance demand is stronger among populations with higher household investment ratio and with higher income. The distributed lag model shows that the increased insurance demand during market fluctuations is an intertemporal substitution so that the market movements affect when but not whether individuals purchase insurance. The mechanism tests indicate that when the market becomes volatile, the press media covers more incidents or anecdotes of stress-induced diseases, including hospitalization and death, which leads to an upsurge in related keywords searches in the search engine. It demonstrates that individual attention to health issues associated with investment-induced stress increases in response to salient news. We explore economic explanations for our results and, given the pre-existing condition and the waiting-period provision by the insurer (i.e., policy not effective until months after the purchase), we find support for salience theory.

Discussant
avatar for Katja Hanewald

Katja Hanewald

Senior Lecturer, UNSW Sydney, School of Risk & Actuarial Studies

Presenters
avatar for Jianren Xu

Jianren Xu

University of North Texas



Tuesday August 3, 2021 9:00am - 10:30am EDT

9:00am EDT

3E Health Insurance-Private & Public ⚑ (Moderator - Jim Carson, University of Georgia)
Session 3E
Paper 1: 9:00-9:30
Paper 2: 9:30-10:00
Paper 3: 10:00-10:30

Tuesday August 3, 2021 9:00am - 10:30am EDT
Room E

9:00am EDT

3E1 Estimating the Consumption Smoothing Effect of Health Insurance
Yugang Ding, School of Economics Peking University; Lizhen Wang, Central University of Finance and Economics; Lin Tang, The University of Hong Kong; Hua Chen, School of Insurance, Central University of Finance and Economics

This paper studies the consumption smoothing effect of health insurance based on medical insurance reform in China. Public health insurance in China includes the New Rural Cooperative Medical System (NCMS) and the Urban Residents’ Basic Medical Insurance (URBMI). In 2016, the NCMS and the URBMI were integrated to improve social welfare. We employ a difference-in-difference model to test whether this integration helps households better mitigate consumption fluctuation under the health shock of chronic diseases. We find that chronic diseases decrease household food and nonfood consumption by 18.1% and 6.4% and increase self-paid medical expenditures by 81.3%. The integration reform can mitigate the fluctuation of food consumption and self-paid medical expenditures under chronic disease shock by 11.5 and 19.3 percentage points. There is, however, no significant difference in nonfood consumption fluctuation before and after the reform.

Discussant
DP

Daniel Prinz

Harvard University

Presenters
YD

Yugang Ding

School of Economics Peking University



Tuesday August 3, 2021 9:00am - 10:30am EDT

9:00am EDT

3E2 The Liquidity Sensitivity of Healthcare Consumption: Evidence from Social Security Payments
Daniel Prinz, Harvard University; Tal Gross, Boston University; Timothy Layton, Harvard University

When Social Security checks are distributed, prescription fills under the Medicare Part D program increase by 6--12 percent. In that sense, drug consumption of low-income Medicare recipients is ``liquidity sensitive.'' When recipients have their copayments eliminated, their drug consumption becomes less liquidity sensitive. Recipients whose drug consumption is most liquidity sensitive exhibit price elasticities of demand that are twice the size of the average elasticity. The results demonstrate that more complete insurance not only protects recipients from risk but also provides recipients with the ability to consume healthcare when they need it rather than when they have cash.

Discussant
TS

Tice Sirmans

Illinois State University

Presenters
DP

Daniel Prinz

Harvard University



Tuesday August 3, 2021 9:00am - 10:30am EDT

9:00am EDT

3E3 Scope Economies in Commercial Health Insurance
Tice Sirmans, Illinois State University; Patty Born, Florida State University

In markets where companies can offer multiple products or services, the cost of production may decline as the variety of products or services increases. We test whether these economies of scope exist among U.S. health insurers, who can offer a variety of health insurance products across different lines of business. Using a sample of insurers writing commercial health insurance business over the period 2010-2018, we provide evidence that insurers providing coverage in only one health insurance line of business have significantly higher underwriting profitability. However, these monoline insurers have significantly higher expense ratios. Among the majority of insurers that provide coverage in more than one line of business, we find variations in both underwriting performance and expense ratios across insurers that participate in multiple medical services lines (e.g., providing both individual and group plans) and those whose portfolios include other health lines which are not major medical expense lines (e.g., dental, vision). Our findings have important implications for understanding how changes to health insurer product portfolios may achieve the objectives of reducing insurer expenses and lowering consumers’ cost of coverage.

Discussant
YD

Yugang Ding

School of Economics Peking University

Presenters
TS

Tice Sirmans

Illinois State University
avatar for Patty Born

Patty Born

Florida State University
Dr. Patricia Born is the Midyette Eminent Scholar in Risk Management and Insurance in the Department of Risk Management/Insurance, Real Estate and Legal Studies at Florida State University’s College of Business. She also serves as advisor of the Risk Management and Insurance doctoral... Read More →



Tuesday August 3, 2021 9:00am - 10:30am EDT

10:45am EDT

4A (Re)Connecting Post-Pandemic ⚑ (Moderator - Randy Dumm)
This session includes a presentation by representatives from the Fulbright Program that will focus on the Fulbright Scholars Program (faculty) and also include information the Fulbright English Teaching Assistant (ETA) program that may be of interest to your students.  The second part of this session is under development but it will also include information on other international opportunities.
Session 4A
Part 1 (Fulbright Scholar): 10:45-11:30
Part 2: 11:30-11:45 (GBARMI)
Part 3 (Open discussion on opportunities- conferences, seminars, visiting scholar): 11:45-12:15

Tuesday August 3, 2021 10:45am - 12:15pm EDT
Room A

10:45am EDT

4A1 (Re)Connecting Internationally as a Fulbright Scholar (TIME 10:45-11:30)
Jaclyn Assarian is an Outreach and Recruitment Specialist for the Fulbright U.S. Scholar Program at the Institute of International Education (IIE). Based in Washington, D.C., she and the Outreach and Recruitment Team help academics and professionals at every stage of their career pursue projects abroad through Fulbright opportunities by supporting them throughout the application process

The primary focus of this session is to provide information on the U.S. Fulbright Scholars Program (international opportunities for U.S. faculty) and the Non-Resident Fulbright Scholars Program (U.S. opportunities for international faculty). The session will provide information on the process of identifying and applying for Fulbright grants, and guidance on preparing a competitive application. Additional information will be provided on Fulbright program opportunities for undergraduate and graduate students.

Moderator: Randy Dumm


Presenters
avatar for Jaclyn Assarian

Jaclyn Assarian

Outreach and Recruitment Specialist, Fulbright Scholar Program
Jaclyn Assarian is an Outreach and Recruitment Specialist for the Fulbright U.S. Scholar Program at the Institute of International Education (IIE). Based in Washington, D.C., she and the Outreach and Recruitment Team help academics and professionals at every stage of their career... Read More →


Tuesday August 3, 2021 10:45am - 12:15pm EDT

10:45am EDT

4A2 (Re)Connecting Internationally Post-Pandemic- China Greater Bay Area Risk Management Institute (TIME 11:30-11:45)
Presentation on research opportunities with the Greater Bay Area Risk Management Institute

Dr. Kyle Kung is the COO of Greater Bay Area Risk Management Institute (GBARMI). Previously, he was Managing Director and Head of Innovation Lab at State Street Hangzhou. Prior to State Street, Kyle was the COO and co-founder Soliton Financial Analytics (SFA) in Hong Kong. Kyle’s experience also includes Deputy General Manager, Financial Strategies Group at Shinsei Bank in Tokyo and Director of Moody’s KMV in Hong Kong and San Francisco. Kyle received his Ph.D. from the University of California, Berkeley.

Presenters
avatar for Kyle Kung

Kyle Kung

Greater Bay Area Risk Management Institute


Tuesday August 3, 2021 10:45am - 12:15pm EDT

10:45am EDT

4A3 (Re)Connecting Internationally- Shared Opportunities (TIME 11:45-12:15)
This part of Session 4A will include discussion of seminars, conferences, and visiting opportunities at ARIA member institutions. The list of speakers is being developed but currently includes Gene Lai (SWUFE, Chengdu, China-  Longevity Conference and visiting opportunities), Ben Collier (Temple/Wharton Risk Center, Philadelphia, USA)- joint visiting opportunities, Fox School (Temple) Hedges Seminar), Andreas Richter (Munich Risk and Insurance Center- LMU Behavioral Insurance Conference, visiting opportunities), Jing AI (Tsinghua University, Beijing, China-China International Conference on Insurance and Risk Management).

Presenters
BC

Benjamin Collier

Temple University
GL

Gene Lai

University of North Carolina-Charlotte
JA

Jing Ai

University of Hawaii


Tuesday August 3, 2021 10:45am - 12:15pm EDT

10:45am EDT

4B Insurance Economics ⚑ (Moderator - Patty Born, Florida State University)
Session 4B
Paper 1: 10:45-11:15
Paper 2: 11:15-11:45
Paper 3: 11:45-12:15

Tuesday August 3, 2021 10:45am - 12:15pm EDT
Room B

10:45am EDT

4B1 Insurance design and arson-type risks
Jean-Gabriel Lauzier, Bocconi University

We design the optimal insurance contract when the insurer faces arson-type risks using a novel proof technique. The optimal contract must be manipulation-proof. The optimal contract is therefore continuous and has a bounded slope. Any contract which mixes deductible and coinsurance is robust to these types of risks.

Discussant
JJ

Johannes Jaspersen

Ludwig-Maximilians-Universität München

Presenters
JL

Jean-Gabriel Lauzier

Bocconi University



Tuesday August 3, 2021 10:45am - 12:15pm EDT

10:45am EDT

4B2 Optimal insurance under moral hazard in loss reduction
Minha Lee, Sungkyunkwan University; Hangsuck Lee, Sungkyunkwan University; Jimin Hong, Soongsil University

This study investigates the optimal insurance when moral hazard exists in loss reduction. We identify that full insurance is optimal up to a limit and partial insurance is optimal above that limit. For a prudent individual, the indemnity schedule is convex, linear, or concave in the loss in which partial insurance is optimal, depending on the shapes of the utility and loss distribution. The optimal insurance may contain a deductible for large losses only when the indemnity schedule is convex. It may also include a fixed reimbursement when the schedule is convex or concave. When the loss distribution belongs to the linear exponential family, the indemnity schedule is concave under IARA and CARA, whereas it can be concave or convex under DARA.

Discussant
JL

Jean-Gabriel Lauzier

Bocconi University

Presenters
ML

Minha Lee

Sungkyunkwan University



Tuesday August 3, 2021 10:45am - 12:15pm EDT

10:45am EDT

4B3 Sales Tax and Arson
Roger White, Arizona State University; Mason Snow, Arizona State University

Florida sales taxes are unique in that they apply to leases on commercial real estate and the sales/leases of automobiles. Prior research and anecdotal evidence suggest that such taxes can burden lessees with unexpected costs and depress after-tax selling/renting/leasing returns for property owners. We examine whether these tax-induced financial pressures spill over and spur arson. We analyze a 20-year panel of Florida counties using a generalized difference-in-differences design and find that local sales tax rates positively predict arson levels for property subject to Florida sales taxes (commercial buildings and cars), but bear no relation to arson levels in property classes exempt from local sales taxes (single-family homes, government buildings). These findings suggest that sales taxes burden owners and lessees of affected property to the point that, at the margin, they resort to arson at higher rates (to avoid future payments, garner an insurance payout, prevent selling at a loss, etc.).

Discussant
CN

Charles Nyce

Florida State University

Presenters
avatar for Mason Craig Snow

Mason Craig Snow

PhD Student, Arizona State University



Tuesday August 3, 2021 10:45am - 12:15pm EDT

10:45am EDT

4C Life Insurance ⚑ (Moderator - David McCarthy, University of Georgia)
Session 4C
Paper 1: 10:45-11:15
Paper 2: 11:15-11:45
Paper 3: 11:45-12:15

Tuesday August 3, 2021 10:45am - 12:15pm EDT
Room C

10:45am EDT

4C1 Market Discipline and Policy Loans
Chia-Chun Chiang, University of Texas at El Paso; Greg Niehaus, University of South Carolina

Compared to surrendering a policy, we show that taking out a policy loan can be a less costly way for policyholders to protect their cash value from insurer insolvencies, especially for policyholders with cash values in excess of the state’s guaranty amount. Consistent with this argument, we find that life insurance policyholders’ demand for policy loans increases when the insurer’s financial strength declines. In addition, the relationship between policy loans and insurer financial strength is stronger during the financial crisis. It indicates an increased customer awareness of, and/or sensitivity to, the insolvency risk of financial institutions during the crisis. The analysis shows that policy loans are another mechanism that can provide market discipline to life insurers.

Discussant
TB

Thomas Berry-Stoelzle

University of Iowa

Presenters
CC

Cici Chiang

Assistant Professor, University of Texas at El Paso
GN

Greg Niehaus

University of South Carolina



Tuesday August 3, 2021 10:45am - 12:15pm EDT

10:45am EDT

4C2 Life insurance convexity
Nicolaus Grochola, Goethe University Frankfurt; Helmut Gründl, Goethe University Frankfurt; Christian Kubitza, University of Bonn

Life insurers massively sell savings policies that guarantee minimum withdrawals. When market interest rates increase, these guarantees become in-the-money, incentivizing withdrawals. We empirically document this effect by exploiting partly hand-collected insurer-level data. A one-standard-deviation increase in interest rates leads to an increase in withdrawal rates by 0.3 standard deviations. Thus, an interest rate rise can force insurers to sell assets. We build a granular model to estimate resulting fire sale externalities. Forced sales reduce asset prices by up to 1% and insurers' equity capital by up to 15bps. They are primarily driven by insurers' long-dated investments.

Discussant
avatar for Jonas Raphael Jahnert

Jonas Raphael Jahnert

P.h.D Student, Institute of Insurance Economics, University of St. Gallen

Presenters
CK

Christian Kubitza

University of Bonn
avatar for Nicolaus Grochola

Nicolaus Grochola

Goethe University Frankfurt



Tuesday August 3, 2021 10:45am - 12:15pm EDT

10:45am EDT

4C3 Lagging Behind or Being Shackled? An Empirical Analysis of the Pricing Behavior in the German Term Life Insurance Market
Jonas Raphael Jahnert, Institute of Insurance Economics, University of St. Gallen; Hato Schmeiser, Institute of Insurance Economics, University of St. Gallen; Florian Schreiber, Lucerne University of Applied Sciences and Arts

Life insurances companies are highly regulated. These regulations do not only include solvency requirements, but also comprise product pricing. In other industries, companies aim to increase producer rents by using information in respect to the policyholder’s willingness to pay, which allows them to endeavor price discrimination if no perfect competition prevails. In this paper, we investigate the pricing behavior in German Term Life insurance market by analyzing market prices, actuarial fair pricing and the willingness to pay for eighteen customer groups and three product categories. The results show that premiums charged for budget Term Life insurance products are in some cases even below the actuarial fair price. For premium products, regulation and market conditions hinder life insurance company to employ price discrimination.

Discussant
CC

Cici Chiang

Assistant Professor, University of Texas at El Paso

Presenters
avatar for Jonas Raphael Jahnert

Jonas Raphael Jahnert

P.h.D Student, Institute of Insurance Economics, University of St. Gallen
avatar for Hato Schmeiser

Hato Schmeiser

Managing Director, University of St. Gallen, Institute of Insurance Economics



Tuesday August 3, 2021 10:45am - 12:15pm EDT

10:45am EDT

4D Insurance Operations & Oversight ⚑ (Moderator - Anastasia Ivantsova, University of Calgary)
Session 4D
Paper 1: 10:45-11:15
Paper 2: 11:15-11:45
Paper 3: 11:45-12:15

Tuesday August 3, 2021 10:45am - 12:15pm EDT
Room D

10:45am EDT

4D1 Board Composition, Ownership Structure, and Cash Holdings: Evidence from the US Property-Casualty Insurance Industry
Lih Ru Chen, USC

This study examines the effectiveness of internal corporate governance mechanisms on firm cash holdings in the U.S. property casualty insurance industry from 2007 to 2015. We focus on the impact of outside directors on the cash holdings in relation to the ownership structure in the U.S. insurance industry. We examine whether the independence of board of directors and ownership structure are effective internal corporate governance mechanisms in eliminating agency conflicts between owner and managers over cash holdings. The results will confirm whether independent board members play a role in monitoring managers’ spending behavior. Additionally, we investigate whether stock insurance firms have comparative advantage in eliminating agency conflicts between owner and managers over cash holdings than mutual insurance firms. This study will also examine whether board composition and ownership structure are substitute control mechanisms in eliminating agency conflicts over excess cash holdings.

Discussant
avatar for Andre Liebenberg

Andre Liebenberg

University of Mississippi

Presenters
LR

Lih Ru Chen

Assistant Professor, Shih Chien University



Tuesday August 3, 2021 10:45am - 12:15pm EDT

10:45am EDT

4D2 Multimarket Competition, Price, and Product Innovation in the US Homeowners Insurance Market
Tao Sun, Lingnan University; Mary Weiss, Temple University

Diversified firms often compete in several markets simultaneously leading to so-called multimarket contact (MMC). This study examines the effect of MMC on homeowners insurance price and product innovation in the U.S. from 2000 to 2017. We find that the level of MMC is positively related to upward changes in the homeowners insurance rate and higher homeowners insurance price generally. More importantly, we find that the level of MMC is negatively associated with homeowners insurance product innovation. We also find that the state-level MMC is positively correlated with the average cost of homeowners insurance. These results are consistent with the mutual forbearance hypothesis, i.e., MMC may facilitate tacit collusion and thus weaken market competition. To address the potential endogeneity issue of using MMC measures, we use the instrumental variable regressions. We conduct a variety of robustness tests and find that our main results are robust to potential biases due to measurement problems in homeowners insurance price change, measurement errors in MMC, and the impact of the 2007-2009 Great Financial Crisis. This paper offers the first study of MMC in the U.S. homeowners insurance market showing that insurers’ product overlaps across geographical markets is an important pricing factor and that the level of MMC has a dampening effect on product innovation. Our results have important implications for insurance regulatory policies, most importantly, simple measures of the degree of competition such as the Herfindahl-Hirschman index are not always reliable measures of competition. Keywords: multimarket contact, homeowners insurance price, product innovation, diversification

Discussant
avatar for Ty Leverty

Ty Leverty

University of Wisconsin-Madison
Tyler Leverty is an Associate Professor in the Department of Risk and Insurance at the University of Wisconsin-Madison. He holds the Gerald D. Stephens CPCU Distinguished Chair in Risk Management and Insurance.  He is a Senior Editor of the Journal of Risk and Insurance, the current... Read More →

Presenters
TS

Tao Sun

Lingnan University



Tuesday August 3, 2021 10:45am - 12:15pm EDT

10:45am EDT

4D3 CEO political orientation, risk-taking and firm performance: Evidence from the US property-liability insurance industry
Kwangmin Jung, POSTECH (Pohang University of Science and Technology); Sangyong Han, Korea Insurance Research Institute

We examine how CEOs’ political orientation can affect risk-taking behavior and performance of U.S. property-liability insurance companies. Using information on political donations by CEOs to measure their political identity, we document a strong relationship between CEOs’ political conservatism and risk-averse behavior in insurers’ decision-making. We find that the more Republican partisan CEO (or more politically conservative) is, the less risks a property-liability insurer tends to take in the capital market and underwriting business. We also provide evidence on firm performance that insurers managed by Republican-oriented CEOs are more likely to achieve better financial profitability. The overall findings lead to the conclusion that property-liability insurers with politically conservative CEOs tend to have lower variability in their asset investments and underwriting business, but are more likely to achieve their corporate value to satisfy their shareholders and policyholders.

Discussant
TS

Tao Sun

Lingnan University

Presenters
SH

Sangyong Han

Korea Insurance Research Institute
KJ

Kwangmin Jung

POSTECH (Pohang University of Science and Technology)



Tuesday August 3, 2021 10:45am - 12:15pm EDT

10:45am EDT

4E Risk & Sensitivity ⚑ (Moderator - Joerg Schiller, University of Hohenheim)
Session 4E
Paper 1: 10:45-11:15
Paper 2: 11:15-11:45
Paper 3: 11:45-12:15

Tuesday August 3, 2021 10:45am - 12:15pm EDT
Room E

10:45am EDT

4E1 Orthogonal reverse stress scenarios for portfolio risk measurement and management
Philipp Aigner, Mainz University of Applied Sciences; Sebastian Schlütter, Mainz University of Applied Sciences

Banks and insurance companies employ sophisticated methods to measure their portfolio-wide risks in terms of an economic or regulatory capital. Reverse stress tests can be used to communicate the model and its outcomes to decision makers and stakeholders, allowing them to challenge the model and to take informed decisions. In this sense, a single stress scenario is only of limited use since it does not allow to evaluate how diversification effects alter as a result of a portfolio change. This paper suggests a new concept to define several reverse stress scenarios whose outcomes can be aggregated towards the current portfolio's risk measurement. The scenarios allow for evaluating portfolio changes in accordance with the original (``model-based'') risk measurement in the sense of first and second order derivatives starting from the current portfolio. Our numerical examples for an insurance company demonstrate that risk evaluations based on our scenarios are better in line with the original risk measurement than those of concurrent methods such as principal component analysis.

Discussant
avatar for Hato Schmeiser

Hato Schmeiser

Managing Director, University of St. Gallen, Institute of Insurance Economics

Presenters
avatar for Philipp Aigner

Philipp Aigner

Doctoral Student, Mainz University of Applied Sciences
avatar for Sebastian Schlütter

Sebastian Schlütter

Mainz University of Applied Sciences



Tuesday August 3, 2021 10:45am - 12:15pm EDT

10:45am EDT

4E2 Pareto-optimal Reinsurance with Default Risk and Solvency Regulation
Tom Boonen, University of Amsterdam; Wenjun, Jiang, University of Calgary

This paper studies an optimal reinsurance problem of Pareto-optimality when the contract is subject to default of the reinsurer. We assume that the reinsurer can invest a share of its wealth in a risky asset and default occurs when the reinsurer's end-of-period wealth is insufficient to cover the indemnity. We show that without the solvency regulation, the optimal indemnity function is of excess-of-loss form, regardless of the investment decision. We model solvency regulation as a constraint on the probability of default. Under solvency regulation, by assuming the investment decision remains the same as in the unconstrained solution, the optimal indemnity function is derived element-wisely. Partial results are given when the indemnity function and investment decision are jointly constrained by the solvency regulation. Numerical examples are provided to illustrate the implications of our results and the sensitivity of the solutions to the model parameters.

Discussant
avatar for Sebastian Schlütter

Sebastian Schlütter

Mainz University of Applied Sciences

Presenters
TB

Tim Boonen

University of Amsterdam



Tuesday August 3, 2021 10:45am - 12:15pm EDT

10:45am EDT

4E3 Sensitivity-implied tail-correlation matrices
Sebastian Schlütter, Mainz University of Applied Sciences; Joachim Paulusch, R+V Lebensversicherung AG

Tail-correlation matrices are an important tool for aggregating risk measurements across risk categories, asset classes and/or business segments. This paper demonstrates that the classical concepts, such as Value-at-Risk implied tail-correlations, can lead to substantial biases of the aggregate risk measurement's sensitivities with respect to risk exposures. Due to these biases, decision-makers receive an odd view of the effects of portfolio changes and may be unable to identify the optimal portfolio from a risk-return perspective. To overcome these issues, we introduce the "sensitivity-implied tail-correlation matrix". The proposed tail-correlation matrix allows for a simple deterministic risk aggregation approach which reasonably approximates the true aggregate risk measurement according to the complete multivariate risk distribution. Numerical examples demonstrate that our approach is a better basis for portfolio optimization than the Value-at-Risk implied tail-correlation matrix, especially if the calibration portfolio (or current portfolio) deviates from the optimal portfolio.

Discussant
MH

Mike Hoy

Professor, University of Guelph

Presenters
avatar for Sebastian Schlütter

Sebastian Schlütter

Mainz University of Applied Sciences



Tuesday August 3, 2021 10:45am - 12:15pm EDT

12:15pm EDT

Break




Tuesday August 3, 2021 12:15pm - 1:00pm EDT

12:15pm EDT

Break Option: Textbooks and Professional Designations- The Institutes ⚑
Click here to visit live with Dave Thomas from The Institutes!

David P. Thomas, CPCU
The Institutes | Risk and Insurance Knowledge Group
720 Providence Road, Suite 100 • Malvern, PA 19355-3433
P (610) 644-2100 ext. 7698 | DD (484) 831-9086
TheInstitutes.org
Thomas@TheInstitutes.org


Tuesday August 3, 2021 12:15pm - 1:00pm EDT

12:15pm EDT

1:15pm EDT

2:30pm EDT

5A CAT Loss-Markets & Economics ⚑ (Moderator - Krupa Viswanathan, Temple University)
Session 5A
Paper 1: 2:30-3:00
Paper 2: 3:00-3:30
Paper 3: 3:30-4:00

Tuesday August 3, 2021 2:30pm - 4:00pm EDT
Room A

2:30pm EDT

5A1 Bye, Bye, Bye! A Reevaluation of the Impact of Natural Disasters and Regulation on US Property Insurers' Supply Decisions
Brad Karl, East Carolina University; Patricia Born, Florida State University

In this paper, we examine insurers’ willingness to offer homeowners coverage after catastrophic events, with an emphasis on the role of rate regulation. Using data on insurer operations for the period 2007-2019, we estimate the impact of catastrophic events on post-event supply of coverage and test whether supply is sensitive to the disposition of subsequent requests for rate increases. We identify the insurers in states affected by a natural disaster event file for a rate increase in the year following an event. We compare insurers that do not file for a rate increase to those that do to assess whether requesting a rate change and subsequent approval of rate change requests affect the likelihood that an insurer’s premium volume changes materially, e.g., they significantly increase or decrease their exposure in the state. Our empirical results suggest important policy implications with regard to improving the availability of insurance against catastrophic threats. Concerning the impact of regulatory constraints, we present empirical evidence of how certain regulatory responses may unintentionally impede insurers’ willingness to provide coverage against natural disasters.

Discussant
MB

Mark Browne

St. John's University

Presenters
BK

Brad Karl

East Carolina University
Brad Karl the IIANC-NCSLA W. Kurt Fickling Distinguished Associate Professor in Risk Management & Insurance and the Chair of the Department of Finance & Insurance in the College of Business at East Carolina University. His research interests include distracted driving risk, medical... Read More →
avatar for Patty Born

Patty Born

Florida State University
Dr. Patricia Born is the Midyette Eminent Scholar in Risk Management and Insurance in the Department of Risk Management/Insurance, Real Estate and Legal Studies at Florida State University’s College of Business. She also serves as advisor of the Risk Management and Insurance doctoral... Read More →



Tuesday August 3, 2021 2:30pm - 4:00pm EDT

2:30pm EDT

5A2 Economic Recovery Following Disasters: The Roles of Disaster Aid and Insurance
Charles Nyce, Florida State University; Martin Boyer, HEC Montreal, Brad Karl, East Carolina University

Using multitemporal night-time lights satellite imagery, this paper explores the economic recovery from natural disasters. Hypotheses regarding the role of disaster recovery aid from other countries and pre-event insurance market penetration are developed and tested. While both aid and insurance are hypothesized to speed recovery and reduce the long-term effects of disasters, little empirical research currently exists to support this. Using the Swiss Re Sigma reports to identify disaster events globally, as well as reported insured losses to estimate insurance market penetration, lights data is used to estimate both short- and long-term economic impacts. A multi-variate difference-in-difference approach will be utilized.

Discussant
SD

Sabrina Du

Saint Norbert College

Presenters
CN

Charles Nyce

Florida State University
MB

Martin Boyer

HEC Montreal
BK

Brad Karl

East Carolina University
Brad Karl the IIANC-NCSLA W. Kurt Fickling Distinguished Associate Professor in Risk Management & Insurance and the Chair of the Department of Finance & Insurance in the College of Business at East Carolina University. His research interests include distracted driving risk, medical... Read More →



Tuesday August 3, 2021 2:30pm - 4:00pm EDT

2:30pm EDT

5A3 History and Analysis of Natural Catastrophe ILS Issues 2001-2020
Morton Lane, University of Illinois

This paper presents a history of natural catastrophe Insurance Linked Securities [ILS] from 2001 to the end of 2020. The varying nature of ILS issued during those two decades is captured by representing each year’s issued securities as a single portfolio. Importantly then, it is possible to trace the shifting expectations of the market of the risks being assumed and the premiums being charged year by year. A more detailed record is provided of the losses incurred by those same issues. This involves an examination of why and where losses occurred. Were they riskier bonds? What exposures caused the losses? Are there insights for investors that might help future investor performance? Given the risks the market assumed and the losses they experienced should investors be surprised or disappointed by their results? This is another way of asking if the risk analyses that natural catastrophe modeling companies provide in the issue prospectus have done a good job of predicting losses. Does experience match expectations? Too few investors, and not enough analysts are asking these forensic questions. It is believed the approach and analysis herein provide a first and an original examination these questions.

Discussant
AB

Alexander Braun

University of St. Gallen

Presenters
avatar for Morton Lane

Morton Lane

Director, MSFE; President, Lane Financial LLC, University of Illinois
Dr. Morton N. Lane is the Director of the Master of Science in Financial Engineering program at the University of Illinois at Urbana-Champaign. The program started under him in 2010 and was recognized by TFE “The Financial Engineer” as the 2021, 4th best FE program in North America.Dr... Read More →



Tuesday August 3, 2021 2:30pm - 4:00pm EDT

2:30pm EDT

5B Insurance Economics ⚑ (Moderator - Andreas Richter, LMU)
Session 5B
Paper 1: 2:30-3:00
Paper 2: 3:00-3:30
Paper 3: 3:30-4:00



Tuesday August 3, 2021 2:30pm - 4:00pm EDT
Room B

2:30pm EDT

5B1 Peer-to-Peer Risk Sharing with an Application to Flood Risk Pooling
Runhuan Feng, University of Illinois at Urbana-Champaign; Chongda Liu, University of Illinois at Urbana-Champaign; Steve Taylor, New Jersey Institute of Technology

In contrast with classic centralized risk sharing, a novel peer-to-peer risk sharing framework is proposed. The presented framework aims to devise a risk allocation mechanism that is structurally decentralized, Pareto optimal, and mathematically fair. An explicit form for the pool allocation ratio matrix is derived, and convex programming techniques are applied to determine the optimal pooling mechanism in a constrained variance reduction setting. A tiered hierarchical generalization is also constructed to improve computational efficiency. As an illustration, these techniques are applied to a flood risk pooling example. It is shown that peer-to-peer risk sharing techniques provide an economically viable alternative to traditional flood policies.

Discussant
MG

Mario Ghossoub

University of Waterloo

Presenters
RF

Runhuan Feng

University of Illinois at Urbana-Champaign
ST

Steve Taylor

Asst. Prof, NJIT



Tuesday August 3, 2021 2:30pm - 4:00pm EDT

2:30pm EDT

5B2 When is safety a normal good?
Richard Peter, University of Iowa

A probability threshold determines whether safety investments are a normal good or inferior Sweeney and Beard (1992, JRI). We show that this threshold is 0.5 for quadratic utility and less than 0.5 for standard utility. We compute the threshold explicitly for the classes of iso-elastic and linex utility. Self-protection is more likely to be a normal good when risk aversion is high or preventable losses represent a high proportion of income. We also characterize the probability threshold that determines whether an increase in loss severity stimulates the demand for self-protection.

Discussant
RV

R. Vijay Krishna

Florida State University

Presenters
RP

Richard Peter

University of Iowa



Tuesday August 3, 2021 2:30pm - 4:00pm EDT

2:30pm EDT

5B3 Persistent Private Information Revisited
Alex Bloedel, Department of Economics, Stanford University; R. Vijay Krishna, Florida State University; Bruno Strulovici, Northwestern University

This paper revisits Williams’ (2011) continuous-time model of optimal dynamic insurance with persistent private information and corrects several errors in that paper’s analysis. We introduce and study the class of self-insurance contracts that are implementable as consumption-saving problems for the agent with constant taxes on savings chosen by the principal. We show that the contract asserted to be optimal in Williams (2011) is the special self-insurance contract with zero taxes. When the agent’s private endowment is mean-reverting, that contract is strictly dominated by the optimal self-insurance contract, which imposes a strictly positive tax, induces immiseration when the rate of mean-reversion is high, and sends the agent to bliss when the rate of mean-reversion is low. When the agent’s endowment is not mean-reverting, the contract derived in that paper is, in fact, optimal among all incentive compatible contracts; we provide a new explanation for its properties in terms of the agent’s indifference among all reporting strategies. These results extend to the natural discrete-time analogue of the model. Separately, Williams’ (2011) first-order approach to incentive compatibility relies on an erroneous and unjustified assumption on the space of feasible reporting strategies; our analysis does not.

Discussant
RP

Richard Peter

University of Iowa

Presenters
RV

R. Vijay Krishna

Florida State University



Tuesday August 3, 2021 2:30pm - 4:00pm EDT

2:30pm EDT

5C Risk and Market Economics ⚑ (Moderator - Casey Rothschild, Wellesley College)
Session 5C
Paper 1: 2:30-3:00
Paper 2: 3:00-3:30
Paper 3: 3:30-4:00

Tuesday August 3, 2021 2:30pm - 4:00pm EDT
Room C

2:30pm EDT

5C1 More than the sum of its visible parts: (re)insurance and climate adaptation
Vanessa Lueck, Arizona State University

The (re)insurance industry has pledged billions of dollars through InsuResilience and through partnerships with international governmental organizations and NGO’s to expand insurance coverage for the world’s poor and climate vulnerable. One of the goals is to drive climate adaptation through this insurance finance mechanism. Simultaneously, some resilience and adaptation researchers are questioning (re)insurance’s capacity to drive climate adaptation for anyone, including the climate vulnerable and poor. One approach to gain insight into this apparent contradiction is through complex adaptive systems [CAS]. Analyzing (re)insurance using a CAS lens sheds light on both the structure – relationships and interdependencies between actors – and role of individual agents that impact adaptation choices and outcomes. Moreover, a CAS lens provides potential insurance approaches which could steer current unintended negative consequence toward more just and equitable climate adaptation.

Discussant
avatar for Lars Powell

Lars Powell

University of Alabama

Presenters
avatar for Vanessa Lueck

Vanessa Lueck

Affiliate GIOSI & Researcher-in-Residence, Arizona State University & Pacific Institute for Climate Solutions
Dr. Vanessa Lueck recently joined the Pacific Institute for Climate Solutions as a Researcher-in-Residence on the Living with Water project (https://pics.uvic.ca/projects/coastal-adaptation-living-water).  Her research and work include the role of insurance in climate adaptation... Read More →



Tuesday August 3, 2021 2:30pm - 4:00pm EDT

2:30pm EDT

5C2 Intrahousehold Risk Sharing: Evidence from Samburu County, Kenya
Andrew Hobbs, University of San Francisco

Women often bear the brunt of negative shocks to household incomes. I show that non-cooperative models household models with voluntary contributions to public goods can explain this result, and conduct a lab-in-the-field experiment testing household public goods insurance as a potential solution to the problem. In a non-cooperative model, the poorer member of the household, who in many cases is a woman, reduces downside risk for her partner by stepping in to pay for public goods and reducing her own consumption in the event of negative shocks to his income. This structure puts women's consumption at risk when their partner's income or assets are faced with negative shocks. I test demand for household goods insurance relative to traditional asset insurance with a lab-in-the-field experiment in Samburu County, Kenya. The data support the hypothesis generated by the model: women buy more insurance when it is linked to household public goods rather than male-owned assets. The results suggest that in cases where men are primary breadwinners, household public goods insurance may have greater benefits for women than traditional asset insurance. More broadly, I argue that household structure can lead to gendered differences in decisions and outcomes even absent differences in individual preferences.

Discussant
BC

Benjamin Collier

Temple University

Presenters
AH

Andrew Hobbs

Assistant Professor, University of San Francisco



Tuesday August 3, 2021 2:30pm - 4:00pm EDT

2:30pm EDT

5C3 Household Labor Supply in a Pandemic
Kathrin Ellieroth, Colby College; Amanda Michaud, White House Council of Economic Advisers

Living in a married household typically mitigates income risk. Is this true during a pandemic? On the one hand, the presence of two potential earners reduces the household income risk associated with a cut in hours, job loss, or a stay at home order. On the other, married couples are more likely to have children to care for during a stay at home order and larger households are more likely to have a member with a health condition that makes them vulnerable to severe illness if they contract the virus. Using a structural model of labor supply, we measure how these factors affect the welfare outcomes of different household types and the aggregate dynamics of employment in response to the COVID-19 pandemic.

Discussant
AH

Andrew Hobbs

Assistant Professor, University of San Francisco

Presenters
KE

Kathrin Ellieroth

Colby College



Tuesday August 3, 2021 2:30pm - 4:00pm EDT

2:30pm EDT

5D Operational Risk, Fraud, and Big Data ⚑ (Moderator- Randy Dumm, Temple University)
Session 5D
Paper 1: 2:30-3:00
Paper 2: 3:00-3:30
Paper 3: 3:30-4:00

Tuesday August 3, 2021 2:30pm - 4:00pm EDT
Room D

2:30pm EDT

5D1 Operational risk losses and reserving behavior of P&C insurers
JC Marais, University of Georgia; David Eckles, University of Georgia

Reserving behavior of property and casualty insurance firms that have experienced financial losses as a result of operational risk events are compared with firms that did not experience such losses. It is found that firms that experienced operational risk losses exhibit reserving behavior that is materially and persistently different from that of their peers. Preliminary analyses suggest that the dissimilarity in behavior is due to different risk cultures and that reserving practice is indeed influenced by the source of singular operational risk events.

Discussant
avatar for Yu(Rainie) Fang

Yu(Rainie) Fang

Temple University

Presenters
DE

David Eckles

University of Georgia
JM

JC Marais

University of Georgia



Tuesday August 3, 2021 2:30pm - 4:00pm EDT

2:30pm EDT

5D2 Physician Fraud Detection: The Machine Learning Approach
Gene Lai, University of North Carolina at Charlotte; Licheng Jin, Southwestern University of Finance and Economics; Chia-Ling Ho, Tamkang University

Using the supervised machine learning method, we try to detect fraudulent physicians. We apply the supervised neural network to predict the likelihood of a physician to be fraudulent. We choose the Oversampling, the Synthetic Minority Oversampling Technique (SMOTE), and the hybrid methods to deal with the imbalanced data issue. Our classifier provides AUROC (Area Under the Receiver Operating Characteristic Curve) scores approximately 0.80 for these three methods, indicating that the methods can largely separate the fraudulent physicians from the legitimate ones. Using the threshold 0.5, our methods generate the GMean 0.7015, 0.7071, and 0.7304 for the Oversampling, SMOTE, and Hybrid methods, respectively. The Recall equals 0.6829, 0.6585, and 0.6098 for these three methods accordingly. Compared with the traditional logistic regression, our method is more appropriate for physician fraud detection since the logistic regression underfits the data. This paper has important implications for insurers: speeding up the claim review process, narrowing the fraud investigation range, excluding suspicious fraudulent physicians as external reviewers, and accurately identifying fraudulent physicians. Moreover, our results also have policy implications for policyholders, hospitals, and the health care industry because fraudulent claims cost all the parties involved.

Discussant
Presenters
GL

Gene Lai

University of North Carolina-Charlotte



Tuesday August 3, 2021 2:30pm - 4:00pm EDT

2:30pm EDT

5D3 Observations on Empirical Resarch involving Machine Learning
Richard Butler, BYU

In an invited commentary, Richard Butler provides observations on empirical research involving machine learning.

Discussant
AO

Abena Owusu

Assistant Professor of Finance, Montclair State University

Presenters

Tuesday August 3, 2021 2:30pm - 4:00pm EDT

2:30pm EDT

5E Climate Risk ⚑ (Moderator - Joan Schmit, Univ. of Wisconsin - Madison)
Session 5E
Paper 1: 2:30-3:00
Paper 2: 3:00-3:30
Paper 3: 3:30-4:00

Tuesday August 3, 2021 2:30pm - 4:00pm EDT
Room E

2:30pm EDT

5E1 Assessing and Attributing Climate Change Response of US Insurance Firms
Abena Owusu, Montclair State University; Aparna Gupta, Rensselaer Polytechnic Institute; Jue Wang, University of Massachusetts-Amherst

Climate change poses as a serious risk for insurance firms, threatening the affordability of the impact of insurance risks and sustainability of the firms. In this research, we assess and distinguish between insurance firms’ response to climate change risks, and examine how their climate change risk exposures relate to their financial and governance characteristics. Using a text mining approach, we build a climate change dictionary with three sub-dictionaries - risk, impact and response, and apply a ‘nested structure’ feature extraction approach to extract, define and classify insurance firms’ adaptation levels to climate change risk exposures. We find that insurance firms with high exposure to climate change physical risks (event-driven (acute risk) and long term shift in climate change patterns (chronic risk)) present a high level of adaptation response to the pecuniary impact of the risks. Furthermore, these insurance firms have lower financial performance measures compared to insurance firms with low exposure to climate change risks. Relating the climate change risk features to quantitative firm characteristics in a classification and regression tree analysis, we find that reinsurance liabilities and reinsurance assets of insurance firms, in addition to the depreciation of tangible fixed assets, reserves and plant, property and equipment largely dictates climate-related risks of insurance firms.

Discussant
avatar for Kyeonghee Kim

Kyeonghee Kim

Florida State University

Presenters
AO

Abena Owusu

Assistant Professor of Finance, Montclair State University



Tuesday August 3, 2021 2:30pm - 4:00pm EDT

2:30pm EDT

5E2 Climate Risk and Institutional Investors: Evidence from the Insurance Industry
Kyeonghee Kim, Florida State University; Anastasia Ivantsova, University of Calgary; Xiao (Joyce) Lin, St. John's University

We examine whether and how U.S. insurers have taken into account climate risks in their investment portfolios. We exploit a mandatory climate risk disclosure law adopted by multiple states in a staggered fashion, to identify differences in insurers’ carbon-intensive investments over time and across different states, while controlling for a range of insurer and state-specific factors. Our study contributes to the understanding of how institutional investors perceive climate risks, by providing empirical evidence on investors’ corporate bond portfolios rather than equity portfolios. We also add to the existing literature on the effect of climate risk disclosure laws. Our findings have implications on the important role of insurers in the process of transitioning to a carbon-free economy.

Discussant
AT

Ana-Maria Tenekedjieva

Federal Reserve Board of Governors

Presenters
avatar for Kyeonghee Kim

Kyeonghee Kim

Florida State University



Tuesday August 3, 2021 2:30pm - 4:00pm EDT

2:30pm EDT

5E3 Pricing of Climate Risk Insurance: Regulatory Frictions and Cross-Subsidies
Ana-Maria Tenekedjieva, Federal Reserve Board of Governors; Ishita Sen, Harvard Business School

Homeowners’ insurance provides households financial protection from climate losses. To improve access and affordability, state regulators impose price controls on insurance companies. Using novel data, we construct a new measure of rate setting frictions for individual states and show that different states exercise varying degrees of price control, which positively correlates with how exposed a state is to climate events. In high friction states, insurers are more restricted in their ability to set rates and adjust rates less frequently and by a lower amount after experiencing climate losses. In part, insurers overcome pricing frictions by cross-subsidizing insurance across states. We show that in response to losses in high friction states, insurers increase rates in low friction states. Over time, rates get disjoint from underlying risk, and grow faster in states with low pricing frictions. Our findings have consequences for how climate risk is shared in the economy and for long-term access to insurance.

Discussant
AO

Abena Owusu

Assistant Professor of Finance, Montclair State University

Presenters
AT

Ana-Maria Tenekedjieva

Federal Reserve Board of Governors



Tuesday August 3, 2021 2:30pm - 4:00pm EDT

4:15pm EDT

Puttin' on the RITS Part 1: Strickler Award Presentation⚑
Presentation by the recipient of the Strickler Innovation in Teaching Award. The attached document explains the concepts that will be presented and discussed. 


Presenters
avatar for Mary Kelly

Mary Kelly

Professor, Wilfrid Laurier University
Dr Mary Kelly is Professor (Finance) and Chair of Insurance in the Lazaridis School of Business & Economics at Wilfrid Laurier University. She has a B.Math (Statistics) degree and a M.Math (Actuarial Science) degree, both from the University of Waterloo and a Doctorate in Commerce... Read More →



Tuesday August 3, 2021 4:15pm - 4:45pm EDT
General Session

4:45pm EDT

Puttin' on the RITS Part 2: Planning and Discussion on 2021/2022 Priorities/Workshops/Seminars⚑
This session will include general and breakout room discussion with the focus on developing RITS priorities for the 2021-2022 academic year for events (e.g., RITS seminars, RITS workshops).

Session Facilitator: Marty Grace

Presenters
avatar for Martin F Grace

Martin F Grace

Temple University
Martin F. Grace has been an ARIA member since 1988 and has served or chaired on several committees during his membership. He is happy to be one of a number of ARIA past-Presidents!


Tuesday August 3, 2021 4:45pm - 6:00pm EDT
General Session
 
Wednesday, August 4
 

9:00am EDT

6A Regulation ⚑ (Moderator - Jeff Czajkowski, National Association of Insurance Commissioners)
Session 6A
Paper 1: 9:00-9:30
Paper 2: 9:30-10:00
Paper 3: 10:00-10:30

Wednesday August 4, 2021 9:00am - 10:30am EDT
Room A

9:00am EDT

6A1 Regulatory Inconsistency and Shadow Insurance: The Impact of Solvency II on the US Insurance Market
Jinjing Wang, University of Akron; Ruo Jia, Peking University; Shuyan Liu, Shanghai Finance and Economics University; Jainren Xu, University of North Texas

Abstract Inter-market regulatory inconsistency may lead to regulatory spillover and/or regulatory arbitrage effects across markets. We use the Solvency II reform in the European Union (EU) as a quasi-natural experiment to study the risk and capital dynamics in the U.S. property-casualty insurance market. We find that EU affiliated insurers operating in the U.S. market appear to improve their financial strength compared to U.S. domestic insurers after the reform by reducing asset and underwriting risk-taking, i.e., the evidence of regulatory spillover effects. Interestingly, after the reform, EU affiliated insurers cede more risks through shadow insurance (Koijen and Yogo, 2016) to affiliated, unauthorized, and unrated reinsurers, i.e., the evidence of regulatory arbitrage. The seemingly improved financial strength of EU affiliated insurers disappears after adjusting for the use of shadow reinsurance. The results indicate that the positive spillover effect of Solvency II is offset by the arbitrage effect of shadow insurance.

Discussant
AB

Arina Brutyan

PhD candidate and research Associate, Institute of Insurance Economics, University of St. Gallen

Presenters
JW

Jinjing Wang

University of Akron
avatar for Jianren Xu

Jianren Xu

University of North Texas



Wednesday August 4, 2021 9:00am - 10:30am EDT

9:00am EDT

6A2 Optimal Capital Structure under the Solvency II Regulation in the Presence of Subordinated Debt and Frictions
Arina Brutyan, Institute of Insurance Economics, University of St. Gallen; Hato Schmeiser, Institute of Insurance Economics, University of St. Gallen

Under the Solvency II regulation framework, European insurers are allowed to classify subordinated and hybrid debt with bail-in features as risk-based regulatory capital. In this paper, we aim to derive the optimal capital structure of insurance companies under the Solvency II regulation in the presence of subordinated debt and financial market frictions. Thereby, the valuation of the equity, subordinated debt and policyholders stakes is employed by the spread option pricing framework developed in Bjerksund & Stensland (2014). Taking into account the policyholder’s willingness to pay derived by assuming probabilistic insurance pricing by Wakker et al. (1997), we show that it is optimal for insurance companies to fully exploit their subordinated debt capacity. We confront these results with an empirical data set, illustrating that European insurers currently possess large unused capacities for subordinated and hybrid debt.

Discussant
avatar for Junhao Liu

Junhao Liu

Postdoctoral Research Associate, The University of Sydney

Presenters
AB

Arina Brutyan

PhD candidate and research Associate, Institute of Insurance Economics, University of St. Gallen
avatar for Hato Schmeiser

Hato Schmeiser

Managing Director, University of St. Gallen, Institute of Insurance Economics



Wednesday August 4, 2021 9:00am - 10:30am EDT

9:00am EDT

6A3 Rate Regulation Revisited: Does Stringent Regulation Impact Insurance Prices?
Junhao Liu, The University of Sydney; Tyler Leverty, University of Wisconsin-Madison

This study reinvestigates the effect of stringent rate regulation on prices in the U.S. property-liability industry. Despite a rich literature on insurance rate regulation, the short-term and long-term effects of stringent rate regulation on insurance prices remain unclear. We extend this literature using data at the firm-line-state level, which allows us to estimate fixed effects regressions that exploit different sources of variation in rate regulation – across states, over time, and across lines – to determine whether and how stringent rate regulation effects prices. We find that, on average, stringent rate regulation lowers the unit price of insurance. The magnitude and duration of the influence of stringent rate regulation on price varies over time, with the biggest impact in the early 2000’s during and after a wave of deregulation. We also find suggestive evidence that differences in how states administer rate regulation impact rates.

Discussant
JW

Jinjing Wang

University of Akron

Presenters
avatar for Junhao Liu

Junhao Liu

Postdoctoral Research Associate, The University of Sydney
avatar for Ty Leverty

Ty Leverty

University of Wisconsin-Madison
Tyler Leverty is an Associate Professor in the Department of Risk and Insurance at the University of Wisconsin-Madison. He holds the Gerald D. Stephens CPCU Distinguished Chair in Risk Management and Insurance.  He is a Senior Editor of the Journal of Risk and Insurance, the current... Read More →



Wednesday August 4, 2021 9:00am - 10:30am EDT

9:00am EDT

6B Retirement-Plans & Funding ⚑ (Moderator - Chuck Nyce, Florida State University)
Session 6B
Paper 1: 9:00-9:30
Paper 2: 9:30-10:00
Paper 3: 10:00-10:30

Wednesday August 4, 2021 9:00am - 10:30am EDT
Room B

9:00am EDT

6B1 Demand for reverse mortgages: Behavioral explanations
Tin Long Ho, UNSW Sydney; Hazel Bateman, CEPAR UNSW Sydney; Joshua Funder, Household Capital Pty Ltd; Katja Hanewald, UNSW Sydney, School of Risk and Actuarial Studies

Australian households hold a large part of their wealth in housing and reverse mortgages allow retirees to access this wealth without moving out of their home. Economic theory suggests that these products should be popular, but reverse mortgage markets around the world are small. Using an online survey administered to a sample of 1,000 Australian homeowners aged 60–80, we explore the role of behavioral factors – specifically mental accounting and narrow choice bracketing – in this “reverse mortgage puzzle”. Forty-three percent of our sample stated that they would take a reverse mortgage using an average of thirteen percent of their housing wealth. Participants who were presented with information designed to address possible mental accounting reported the highest demand for reverse mortgages. We also found some heterogeneity in the demand for reverse mortgage products, both at the extensive and the intensive margin largely associated with differences in the amount of non-housing wealth, employment status and differences in the impact of COVID-19 on health, wellbeing, and finances. This research contributes to our understanding of how to offset behavioural barriers to efficient drawdown of the entire household portfolio to finance retirement.

Discussant
XS

Xuesong (Song) You

PhD Candidate, Temple University

Presenters
TL

Tin Long Ho

UNSW Sydney
avatar for Katja Hanewald

Katja Hanewald

Senior Lecturer, UNSW Sydney, School of Risk & Actuarial Studies



Wednesday August 4, 2021 9:00am - 10:30am EDT

9:00am EDT

6B2 Multiemployer Defined Benefit Pension Plans: Funding Rules and Employer Withdrawals
Xuesong You, Temple University ;Tianxiang Shi, Temple University

This paper estimates the effect of funding rules on employer withdrawals from multiemployer pension plans. The funding rules introduced by the Pension Protection Act of 2006 maintain that a multiemployer pension plan with a funded percentage of less than 80% must take corrective actions to improve financial health. We exploit the cutoff and use a regression discontinuity design. We find that multiemployer pension plans subject to funding rule requirements are about 12 percentage points more likely to experience employer withdrawals.

Discussant
LP

Lisa Posey

Penn State University

Presenters
XS

Xuesong (Song) You

PhD Candidate, Temple University
TS

Tianxiang Shi

Temple University



Wednesday August 4, 2021 9:00am - 10:30am EDT

9:00am EDT

6B3 Individual Health Insurance Reforms: Expanding Interstate Markets, Medicare for All, or Medicaid for All?
Charles Yang, Florida Atlantic University; Jason Yeh, The Chinese University of Hong Kong; Derrick Fung, The Hang Seng University of Hong Kong; Joshua Frederick, Ball State University

To help enhancing affordability and availability in the U.S. individual health insurance markets, we evaluate whether expanding interstate markets is associated with efficiency improvement, and the potentials of “Medicaid for All” and “Medicare for All”. We employ traditional, non-oriented slack-based, order-α partial frontier, bootstrapped bias-corrected, and modified context-dependent data envelopment analysis (DEA) models, as well as generalized linear, Tobit, and residual inclusion regression models. We find that higher competition or expansion is not associated with higher consumer efficiency or societal efficiency. Our results also indicate that, in minimizing premiums or expenses given enrollment and utilization of medical services, individual health plans are less efficient than Medicaid managed care plans, but more efficient than Medicare Advantage plans. Our findings imply that, for individual plans, expanding interstate markets is not accompanied with lower premiums or expenses without the sacrifice of medical services. This research suggests that it should be advisable to structure individual health insurance markets following the Medicaid model but not the Medicare model. To “Medicaid-size” individual markets, we propose to structure the individual coverage in two layers: a conditionally subsidized Medicaid managed care program with mandatory essential benefits, and an unsubsidized “Medicaid Supplement” program for optional additional coverages.

Discussant
avatar for Krupa Viswanathan

Krupa Viswanathan

Temple University

Presenters
CY

Charles Yang

Florida Atlantic University



Wednesday August 4, 2021 9:00am - 10:30am EDT

9:00am EDT

6C Health Insurance & LTC ⚑ (Moderator - Cheng Wan, UNSW Sydney)
Session 6C
Paper 1: 9:00-9:30
Paper 2: 9:30-10:00
Paper 3: 10:00-10:30

Wednesday August 4, 2021 9:00am - 10:30am EDT
Room C

9:00am EDT

6C1 Spillover effect of long-term care insurance on family caregivers' labor supply
Xiao Han, School of Economics, Peking University; Zining Liu, School of Insurance, Central University of Finance and Economics, China; Wei Zheng, School of Economics, Peking University

This study examines the effect of long-term care insurance (LTCI) on family caregivers’ labor supply in China. We exploit the introduction of public LTCI in 40 pilot cities in China and implement a difference-in-difference propensity score matching (PSM-DID) technique to disentangle the effect of LTCI and its mediation mechanism. We find that the introduction of LTCI has significant and positive spillover effects on family caregivers’ labor supply both on the extensive and intensive margins and the effects vary by gender and age. The possible mediation mechanisms are caregivers’ health improvement and the re-allocation of time brought about by the substitution of formal long-term care for informal family care. Furthermore, we find LTCI policy design regarded to target groups and reimbursement rules have a significant impact on the above spillover effects using the difference-in-difference-in-difference (DDD) method. We draw attention to these effects, as expanding labor supply to sustain the economy would be a priority for China and other rapidly aging countries in the coming decades.

Discussant
avatar for Julia Holzapfel

Julia Holzapfel

MRIC, LMU Munich

Presenters
avatar for Xiao HAN

Xiao HAN

PhD Candidate, School of Economics, Peking University
Xiao Han is a PhD candidate from School of Economics, Peking University of China. Her research focuses on health insurance, long-term care insurance, and retirement financial products. She completed her bachelor's degree in Astronomy from School of Physics, Peking University.



Wednesday August 4, 2021 9:00am - 10:30am EDT

9:00am EDT

6C2 Classification risk in health insurance: The interaction of prevention and guaranteed renewable insurance
Julia Holzapfel, MRIC, LMU Munich

We study regulatory regimes toward the use of genetic and behavioral information in the pricing of guaranteed renewable (GR) health insurance. Individuals have access to different prevention technologies to reduce their risk of health losses later in life. Thus, insurance markets may be affected by moral hazard and adverse selection. Our results show that GR contracts which reward investments in prevention but do not use genetic information in pricing can be a good compromise to offer classification risk insurance at an attractive price without disadvantaging individuals with an unfortunate genetic endowment. These contracts guide the insured to reduce expected long-term costs from health losses if prevention is similarly productive for everyone. However, they cannot be geared to each insured’s personal abilities. If the productivity of prevention depends strongly on an individual’s genetic disposition, there is a need for additional health campaigns targeted at the ones for whom prevention is particularly productive.

Discussant
AM

Afrasiab Mirza

University of Birmingham

Presenters
avatar for Julia Holzapfel

Julia Holzapfel

MRIC, LMU Munich



Wednesday August 4, 2021 9:00am - 10:30am EDT

9:00am EDT

6C3 Is Affordable Care too Affordable?
Afrasiab Mirza, University of Birmingham; Mike Hoy, University of Guelph; Eric Stephens, Carleton University

We examine the efficiency of private individual health insurance contracts in a dynamic general equilibrium environment in the presence of two key frictions: 1) individuals can not commit to long-term contracts, and 2) illness severity is not observable. We show that the latter leads to a standard ex-post moral hazard friction that impinges on the ability of guaranteed renewable contracts to insure individuals against re-classification risk. Furthermore, we identify a pecuniary externality that arises from individuals failing to account for the effect their insurance purchases have on the price of care in the future. As a result, the equilibrium is constrained inefficient, and characterized by excessive insurance purchases by individuals ex-ante, and over-consumption of medical care ex-post resulting in a bubble for the price of care. Paradoxically, policies that enforce a minimum co-pay are welfare enhancing even as they limit insurance against re-classification and illness.

Discussant
avatar for Xiao HAN

Xiao HAN

PhD Candidate, School of Economics, Peking University
Xiao Han is a PhD candidate from School of Economics, Peking University of China. Her research focuses on health insurance, long-term care insurance, and retirement financial products. She completed her bachelor's degree in Astronomy from School of Physics, Peking University.

Presenters
AM

Afrasiab Mirza

University of Birmingham
MH

Mike Hoy

Professor, University of Guelph



Wednesday August 4, 2021 9:00am - 10:30am EDT

9:00am EDT

6D Big Data & Technology ⚑ (Moderator - Andrew Hobbs, University of San Francisco)
Session 6D
Paper 1: 9:00-9:30
Paper 2: 9:30-10:00
Paper 3: 10:00-10:30

Wednesday August 4, 2021 9:00am - 10:30am EDT
Room D

9:00am EDT

6D1 Number of claims and number of near-misses for telematics pricing in automobile insurance
Mintserrat Guillen, Universität de Barcelona; Ana Perez-Marin, Universität de Barcelona; Jens Nielsen, City University of London

We present a method to integrate telematics data in a pay-how-you-drive insurance pricing scheme that penalizes near-miss events. We illustrate our method with a sample of drivers for whom information on near-miss events and claims frequency records are available. We discuss the implications for motor insurance ratemaking. Our pricing principle is to combine a baseline insurance premium with added extra charges for near-miss events indicating risky driving (or discounts) that can be updated on a weekly basis. This procedure provides an incentive for safe driving. In our real-case study, hard-braking and acceleration events as well as smartphone use while driving increase the cost of insurance.

Discussant
TY

Tong Yu

University of Cincinnati

Presenters
avatar for Montserrat Guillen

Montserrat Guillen

Universitat de Barcelona



Wednesday August 4, 2021 9:00am - 10:30am EDT

9:00am EDT

6D2 Multi-State Health Transition Modeling Using Neural Networks
Katja Hanewald, UNSW Sydney, School of Risk & Actuarial Studies; Qiqi Wang, UNSW Sydney; Xiaojun Wang, Renmin University of China

This article proposes a new model that combines a neural network with a generalized linear model (GLM) to estimate and predict health transition intensities. The model allows for socioeconomic and lifestyle factors to impact the health transition processes, and captures linear and nonlinear relationships. A key innovation is that the model features transfer learning between different transition rates. It autonomously finds the relationships between factors and the links between the transition processes. We apply the model to individual-level data from the Chinese Longitudinal Healthy Longevity Survey from 1998–2018. The results show that our model performs better in estimation and prediction than standalone GLM and neural network models. We thus provide new estimates of the life expectancies for a range of population subgroups. The model can be easily applied to other datasets, and our results confirm that machine learning techniques are promising tools to model insurance risks.

Discussant
avatar for Montserrat Guillen

Montserrat Guillen

Universitat de Barcelona

Presenters
avatar for Katja Hanewald

Katja Hanewald

Senior Lecturer, UNSW Sydney, School of Risk & Actuarial Studies



Wednesday August 4, 2021 9:00am - 10:30am EDT

9:00am EDT

6D3 Mutual Risk Sharing and Fintech: The Case of Xiang Hu Bao
Hanming Fang, University of Pennsylvania and Shanghai Tech University; Xiao Qin, Shanghai Jiao Tong University; Wenfeng Wu, Shanghai Jiao Tong University; Tong Yu, University of Cincinnati

Literally meaning "mutual protection", Xiang Hu Bao (XHB) is a novel online platform operated by Alibaba's Ant Financial to facilitate mutual risk sharing of critical illness exposures. There are three major distinctions between XHB and traditional insurance products. First, XHB leverages the tech giant's platform and digital technology to lower enrollment and claim processing costs. Second, different from insurance applying sophisticated actuarial pricing models, XHB collects no premiums ex ante from members instead equally allocating indemnities and administrative costs among participants after each claims period. Third, XHB limits coverage amount, often below critical illness insurance products, particularly for older participants. We show this restriction potentially leads to separating equilibrium, a la Rothschild-Stiglitz, where low-risk individuals enroll in XHB while high-risk individuals purchase critical illness insurance. Proprietary data from XHB shows that the incidence rate of the covered illness among XHB members is well below that of comparable critical illness insurance. Our findings further suggest the role of advantageous selection in explaining the cost advantages of the Fintech-based mutual protection programs.

Discussant
avatar for Martin F Grace

Martin F Grace

Temple University
Martin F. Grace has been an ARIA member since 1988 and has served or chaired on several committees during his membership. He is happy to be one of a number of ARIA past-Presidents!

Presenters
TY

Tong Yu

University of Cincinnati



Wednesday August 4, 2021 9:00am - 10:30am EDT

9:00am EDT

6E Insurance Markets & Demand ⚑ (Moderator - Jingshu Luo, Le Moyne College)
Session 6E
Paper 1: 9:00-9:30
Paper 2: 9:30-10:00
Paper 3: 10:00-10:30

Wednesday August 4, 2021 9:00am - 10:30am EDT
Room E

9:00am EDT

6E1 Will Repeal of the Individual Mandate Exacerbate the Decline in Unsubsidized Enrollment in the Individual Health Insurance Market?
Yu Lei, Barney School of Business, University of Hartford; Mark Browne, St. John’s University

The implementation of the Patient Protection and Affordable Care Act’s (ACA) premium subsidies and prohibition of medical underwriting in 2014 was followed by a rapid expansion of the individual health insurance market in 2015 and 2016. The trend reversed in the following years, with the market shrinking by 10 percent in 2017 and an additional 7 percent in 2018. There was a further 3 percent decrease in enrollment between 2018 and 2019. The enrollment losses were mainly driven by contraction in the unsubsidized portion of the market, where people who did not qualify for premium subsidies had to bear the full brunt of premium hikes. On the contrary, people eligible for subsidies were shielded from premium increases and the subsidized enrollment has remained relatively stable. The repeal of the individual mandate in 2019 may result in more relatively healthy but unsubsidized individuals dropping out of the market. The purpose of the research is to examine whether the unsubsidized enrollment would continue to drop without the individual mandate. Our results will shed light on what alternatives may be put in place to replace the mandate and stabilize the market. I11Analysis of Health Care Markets I13Health Insurance, Public and Private I18Government Policy • Regulation • Public Health

Discussant
DB

Doug Bujakowski

Drake University

Presenters
MB

Mark Browne

St. John's University
YL

Yu Lei

Barney School of Business, University of Hartford



Wednesday August 4, 2021 9:00am - 10:30am EDT

9:00am EDT

6E2 Climate Change and Demand for Insurance: Evidence from the US Homeowners Insurance
Tao Sun, Lingan University

Climate change imposes serious risks on our society. This study aims to investigate whether and to what extent beliefs regarding climate change will affect the demand for insurance. Using the US homeowners insurance market between 2003 and 2017, we document a positive relationship between belief regarding climate change and demand for homeowners insurance. That is, a one-standard-deviation increase in the level of worry about global warming will result in a 4.17% increase in homeowners insurance coverage. Similarly, a one-standard-deviation increase in the belief that global warming causes personal harm will lead to a 4.47% increase in homeowners insurance coverage. Our results suggest that the increased risk management cost for climate change risk may serve as an alternative mechanism to explain climate change’s impacts on house prices. Keywords: climate change, insurance demand, risk perception, homeowners insurance

Discussant
YL

Yu Lei

Barney School of Business, University of Hartford

Presenters
TS

Tao Sun

Lingnan University



Wednesday August 4, 2021 9:00am - 10:30am EDT

9:00am EDT

6E3 Economic Transition and Insurance Market Development: Evidence from Post-Communist European Countries
Doug Bujakowski, Drake University; Patty Born, Florida State University

We evaluate the development of insurance markets in 18 post-communist European countries over a 10-year period. In doing so, we estimate static and dynamic models to test the relationship between economic transition indices and insurance density and penetration. Results suggest that licensing and trade practices, monetary stability, consumer protections, and government transfers are relevant to property-casualty and life-health insurance consumption. The findings have implications for policymakers aiming to increase insurance coverage in post-communist countries. Additionally, the research underscores the importance of accounting for economic policies and institutions in studies of insurance market development.

Discussant
avatar for Rob Hoyt

Rob Hoyt

Moore Chair and Department Head, University of Georgia
Robert E. Hoyt is the Dudley L. Moore, Jr. Chair and Professor of Risk Management and Insurance in the Terry College of Business at the University of Georgia. He teaches corporate risk management and enterprise risk management and has served as the Department Head for Insurance, Legal... Read More →

Presenters
DB

Doug Bujakowski

Drake University
avatar for Patty Born

Patty Born

Florida State University
Dr. Patricia Born is the Midyette Eminent Scholar in Risk Management and Insurance in the Department of Risk Management/Insurance, Real Estate and Legal Studies at Florida State University’s College of Business. She also serves as advisor of the Risk Management and Insurance doctoral... Read More →



Wednesday August 4, 2021 9:00am - 10:30am EDT

10:45am EDT

Catalysts and Conduits for Impacting Change An ESG Perspective ⚑
  • Moderator: Josh Landau, President, International Insurance Society (IIS)
  • Joan Lamm-Tennant, former CEO, Blue Marble and IIS Resident ESG Expert
  • Rowan Douglas, Head of Climate and Resilience, Willis Towers Watson and Operating Committee Chair, Insurance Development Forum
  • John Scott, Head of Sustainability Risk, Zurich Insurance Group

2020 was a year of retrospect across social, political and economic spectrums globally, inspiring a reexamination of priorities. Beyond social responsibility, insurers are acknowledging the value of stakeholder capitalism through Environmental, Social, and Governance strategies (ESG) that deliver shared value creation for customers, employees, shareholders and society. This panel of experts will explore how insurers are actualizing ESG by embedding these principles into core strategy across the value chain; how these strategies are resonating in the boardroom; and assess the impact of insurers serving as a conduit for building sustainable markets with better impact for society.

Presenters
avatar for Joan Lamm-Tennant

Joan Lamm-Tennant

former CEO, Blue Marble and IIS resident ESG expert
Joan Lamm-Tennant is the Chief Executive Officer and Founder of Blue Marble Micro Limited, a for-profit social enterprise, capitalized by nine international insurance entities and focused on expanding risk protection to the underserved. Previously, Joan was the Global Chief Economist... Read More →
avatar for Rowan Douglas

Rowan Douglas

Head of Climate and Resilience, and Operating Committee Chair, Insurance Development Forum, Willis Towers Watson
Mr Douglas is Head of Capital, Science & Policy (CSP) Practice at Willis Towers Watson, a leading global advisory and re/insurance broking company and Chair of the Willis Research Network. Previously, he served on the Board of the Group's reinsurance division, Willis Re, as CEO Global... Read More →
avatar for John Scott

John Scott

Head of Sustainability Risk, Zurich Insurance Group
John Scott is Head of Sustainability Risk for the Zurich Insurance Group. He joined Zurich in 2001 becoming Head of Risk Insight in 2007 and was Chief Risk Officer for Zurich’s Global Corporate and Commercial Insurance businesses from 2009 to 2017. He took on his current role in... Read More →
avatar for Josh Landau

Josh Landau

President, International Insurance Society (IIS)
Joshua Landau is President of the International Insurance Society. The IIS is the largest and most diverse organization of the global insurance industry. Its members comprise all industry stakeholders, including insurance company executives, scholars, regulators and advisors from... Read More →


Wednesday August 4, 2021 10:45am - 12:00pm EDT
General Session

12:00pm EDT

Break
Wednesday August 4, 2021 12:00pm - 1:00pm EDT

12:00pm EDT

Break Option: Textbooks and Professional Designations- The Institutes ⚑
Click here to visit live with Dave Thomas from The Institutes!

David P. Thomas, CPCU
The Institutes | Risk and Insurance Knowledge Group
720 Providence Road, Suite 100 • Malvern, PA 19355-3433
P (610) 644-2100 ext. 7698 | DD (484) 831-9086
TheInstitutes.org
Thomas@TheInstitutes.org


Wednesday August 4, 2021 12:00pm - 1:00pm EDT

12:00pm EDT

1:00pm EDT

7A ARIA/RITS- Teaching Practices and Technology: Post-Pandemic; Moderator- Lori Medders ⚑
There will be three presentations during the session (15 minute presentation with an additional 15 minutes for Q&A). The three presentations are "Illustrating Judicial Determinations of Policy Ambiguity with a COVID-19 Business Interruption Case," Elizabeth Ragland (University of Louisiana at Monroe), Allison Jarrell (University of Louisiana at Monroe), and Deborah Golemon (University of Louisiana at Monroe); "'Technology Best Practices: Online Synchronous Teaching, Pandemic Or Not," Jim Garven (Baylor University); ""Risk Management Scavenger Hunt': An Experiential Learning Activity During a Time of Pandemic," Kathleen Locklear (SUNY, Oswego).

Moderator: Lori Medders

Session 7A
Paper 1: 1:00-1:30
Paper 2: 1:30-2:00
Paper 3: 2:00-2:30

Wednesday August 4, 2021 1:00pm - 2:30pm EDT
Room A

1:00pm EDT

7A1 Illustrating Judicial Determinations of Policy Ambiguity with a COVID-19 Business Interruption Case
Elizabeth Ragland, University of Louisiana at Monroe; Allison Jarrell, University of Louisiana at Monroe; Deborah Golemon, University of Louisiana at Monroe

Judicial opinions addressing current insurance policy disputes help undergraduate risk
management and insurance students better understand the distinct characteristics of insurance
contracts. The opinion in North State Deli v. The Cincinnati Insurance Company, No. 20-CVS-
02569 (N.C. Sup.Ct. Oct. 9, 2020) addresses business income losses during the COVID-19
pandemic and demonstrates how courts interpret insurance policies. The 2020 government-
mandated COVID-19 shutdowns has had an unprecedented impact on businesses, and thousands
of businesses have filed business interruption claims under their commercial property insurance
policies to recover business income losses. Insurers have denied the majority of these claims,
finding that the insureds had not lost business income due to the requisite “direct physical loss”
to property. These denials have led to more than 1,700 lawsuits. Although the majority of courts
have agreed with insurers’ interpretation of policy language, a few courts, including the court in
North State Deli, have found that the business interruption “direct physical loss” policy language
is ambiguous and have ruled in favor of insureds. The North State Deli opinion is a valuable
teaching tool, because it addresses a current policy dispute and demonstrates how a court
interprets policy terms. It illustrates how a court determines if a policy term is ambiguous and
how a finding of ambiguity results in the court’s interpreting the contract in the light most
favorable to insureds. This presentation will review the North State Deli case, including the
policy language, the parties’ arguments, and the court’s analysis, as well as the teaching
applications of the case in undergraduate risk management and insurance courses.


Presenters
ER

Elizabeth Ragland

University of Louisiana at Monroe


Wednesday August 4, 2021 1:00pm - 2:30pm EDT

1:00pm EDT

7A2 Technology Best Practices: Online Teaching and Collaboration, Pandemic Or Not
Jim Garven, Baylor University

The COVID-19 pandemic created important challenges related to effective communication, engagement and collaboration with students and colleagues alike. In turn, the pandemic created opportunities to experiment with ways to overcome these challenges, particularly related to technology.

Even though many colleges and universities will return to face-to-face instruction during the upcoming academic year, we have learned that we can perform some aspects of academic life effectively online. In this presentation, I will share how I adapted my home office setup to transition during the pandemic from face-to-face to online interaction with students and colleagues and how I plan to incorporate lessons learned in my (hopefully) post-pandemic academic life.

Presenters
avatar for Jim Garven

Jim Garven

Frank S. Groner Memorial Chair of Finance, Professor of Finance & Insurance, and RMI Program Director, Baylor University
I hold appointments at Baylor University’s Hankamer School of Business as the Frank S. Groner Memorial Chair of Finance, Professor of Finance & Insurance, and RMI Program Director. I have previously held business school faculty appointments at three other universities: Louisiana... Read More →



Wednesday August 4, 2021 1:00pm - 2:30pm EDT

1:00pm EDT

7A3 Risk Management Scavenger Hunt: An Experiential Learning Activity During a Time of Pandemic
Kathleen Locklear, SUNY, Oswego

The forced transition to online learning, as a result of the COVID Pandemic, has required an array of adjustments to course materials. Particularly impacted were course activities and assignments that had previously relied upon an in person, synchronous component. This presentation will focus on forced adjustments that were successfully made to a "Risk Management Scavenger Hunt" activity due to the COVID Pandemic.

The “Risk Management Scavenger Hunt” activity was added to the Introduction to Risk Management and Insurance course at SUNY Oswego (RMI 300) in Fall 2020. The activity was designed to be carried out in person, as an on campus class activity. When the campus transitioned fully to online learning, this modality was no longer possible. Due to the popularity of the activity with students the instructor sought to make adaptations that would allow the activity to continue.

The “Risk Management Scavenger Hunt” activity was not originally developed to enhance online learning. However, and as an unanticipated outcome, it is expected that the adjustments will continue to add value in a post-pandemic learning environment. A central element of this presentation will be lessons learned from those adjustments. There will also be emphasis on discussion among session participants.


Presenters
KL

Kathleen Locklear

Assistant Professor, Risk Management & Insurance, State University of New York at Oswego
Greetings!  This is my first time attending the ARIA conference. I welcome any opportunities to make new connections, so please feel free to reach out and/ or attend my presentation during Session 7A.  I am currently Assistant Professor of Risk Management and Insurance at SUNY Oswego... Read More →


Wednesday August 4, 2021 1:00pm - 2:30pm EDT

1:00pm EDT

7B Insurance & Financial Literacy ⚑ (Moderator - Anne Kleffner, University of Calgary)
Session 7B
Paper 1: 1:00-1:30
Paper 2: 1:30-2:00
Paper 3: 2:00-2:30

Wednesday August 4, 2021 1:00pm - 2:30pm EDT
Room B

1:00pm EDT

7B1 Insurance Literacy is Different
Christoph Jaenicke, University of St. Gallen; Martin Eling, Institute of Insurance Economics

Using representative survey data among the working Swiss population we show that insurance literacy is different from financial literacy. While both literacy measures are higher among men, we observe that financial literacy is largely driven by education, whereas insurance literacy increases with age and income. Insurance literacy occurs more event- than interest-related. Motivated by the differences between both literacy measures, we extend past research on the effect of culture to insurance literacy. We identify a significant and robust heterogeneity in insurance literacy depending on both spatial and cultural affiliation. The magnitude of the cultural effect is high compared to other control variables. Our mediation analysis attributes differences in insurance literacy to different levels of risk preferences across cultural groups. Also with respect to the impact of culture, we observe significant differences between insurance and financial literacy.

Discussant
Presenters
CJ

Christoph Jaenicke

University of St. Gallen
ME

Martin Eling

University of St. Gallen



Wednesday August 4, 2021 1:00pm - 2:30pm EDT

1:00pm EDT

7B2 Going to the next level: On the effectiveness of a gamified course material to improve financial literacy and mitigate the myopic bias
Francisco Pitthan, KU Leuven; Kristof De Witte, KU Leuven

Using a randomized experiment, this paper examines the effectiveness of gamified course material in improving financial literacy and reducing the bias ‘myopia’ from behavioral economics. Financial illiteracy affects considerably the decision-making of individuals, leading to sub-optimal outcomes and lower financial welfare in the society. One of the most common approaches to improve the financial literacy is financial education. Although financial education has been shown to improve financial knowledge, the gains to financial behavior are limited with few evidences of long-lasting effects in the society. One of the possible reasons behind this is the existence of behavioral and cognitive biases, which have also been linked to poorer decision. One of the particular biases that has been linked to sub-optimal decisions is myopia, which impacted the financial well-being in decisions across sectors such as investments, insurance and pensions. In a large scale randomized controlled trial among secondary school students in the Flemish region of Belgium, we test the effectiveness of course materials that explicitly mitigate the impact of similar cognitive biases, teaching children about insurance and investment decisions. We measure the effectiveness of the materials using baseline without financial education classes, and three intervention groups: one with a regular class about financial education and two other groups that received a modified version of the class which also teach children about the myopic bias in addition to financial education. The results suggest that the intervention groups had significant better results for both the financial literacy and myopic post-tests in comparison to the baseline condition.

Discussant
MS

Mark Schultze

Ulm University

Presenters


Wednesday August 4, 2021 1:00pm - 2:30pm EDT

1:00pm EDT

7B3 What to Offer If Consumers Do Not Want What They Need? A Simultaneous Evaluation Approach with an Application to Retirement Savings Products
Mark Schultze, Ulm University; Jochen Rub, if a - Institute für Finanz- und Aktuarwissenschaften / Ulm University; Stefan Schelling, Ulm University

Traditionally, in economics one considers utility maximizing economic agents. The results provide insight on how consumers should behave. In practice, however, human decisions are influenced by numerous behavioral patterns that result in a deviation between subjective attractiveness and objective utility and hence lead to systematic deviations from rationally optimal behavior. This also applies to decisions in the context of retirement saving, we often find a large difference between theoretically optimal products and observed demand. In the worst case, this can result in substantial pension gaps, and hence in a reduction of the standard of living in in the retirement phase. The aim of this work is to (simultaneously) assess and evaluate the objectively rational utility and the subjectively perceived attractiveness of retirement savings products. Such a combined approach can help to identify or design retirement savings products that create a high (albeit not the maximum possible) objective utility while at the same time being subjectively of high (albeit not maximum possible) attractiveness. We argue that a focus on such products might help consumers make better decisions than currently observed decisions that seem to be driven primarily by subjective attractiveness.

Discussant
CJ

Christoph Jaenicke

University of St. Gallen

Presenters
MS

Mark Schultze

Ulm University



Wednesday August 4, 2021 1:00pm - 2:30pm EDT

1:00pm EDT

7C Capital Markets & Catastrophes ⚑ (Moderator - Daniel Bauer, University of Wisconsin - Madison)
Session 7C
Paper 1: 1:00-1:30
Paper 2: 1:30-2:00
Paper 3: 2:00-2:30

Wednesday August 4, 2021 1:00pm - 2:30pm EDT
Room C

1:00pm EDT

7C1 Hurricane Risk and Asset Prices
Julia Braun, University of St. Gallen, Institute for Insurance Economics; Alexander Braun, University of St. Gallen; Florian Weigert, University of Neuchatel

This paper examines how natural disaster risk feeds into the U.S. stock market and whether investors receive compensation for holding hurricane-sensitive stocks. Our paper theoretically motivates the natural catastrophe risk premium by consumption-based asset pricing with heterogenous agents subject to idiosyncratic labor income shocks. We show that the cross-section of expected stock returns reflects a premium for hurricane risk as measured by the individual stock return's regression coefficient with our hurricane risk factor. We contribute to the rare-disaster risk literature by explicitly focusing on natural catastrophe risk and by constructing a hurricane factor using all U.S. common stocks.

Discussant
BC

Benjamin Collier

Temple University

Presenters
AB

Alexander Braun

University of St. Gallen



Wednesday August 4, 2021 1:00pm - 2:30pm EDT

1:00pm EDT

7C2 No Shock Waves through Wall Street? Market Responses to the Risk of Nuclear War
David Finer, The University of Chicago Booth School of Business

With a growing literature documenting market impacts of climate risk, I use the Cold War to shed light on the extent to which market participants price the unobserved extreme tail of a salient risk. Exploiting the natural experiment of the Cuban Missile Crisis, I find that the geographic cross-section of firms’ equity returns in response to changes in the risk of nuclear conflict is broadly consistent with their headquarters' exposures to destruction. Such discrimination is plausible given contemporary survey evidence that investors generally believed that the US could recover from a nuclear war. A calibrated model informed by survey expectations suggests that: i.) investors underreact to the potential for catastrophe; ii.) investors exhibit a far lower level of risk aversion than is typically used to fit market data; or iii.) investor heterogeneity or noise makes survey data inaccurate indicators of investors' perceived exposures to extreme risks.

Discussant
HL

Hae-Kang Lee

University of South Carolina

Presenters
DA

David Andrew Finer

PhD graduate, University of Chicago



Wednesday August 4, 2021 1:00pm - 2:30pm EDT

1:00pm EDT

7C3 Common Risk Factors in the Cross-Section of Cat Bond Returns
Markus Herrmann, University of Duisberg-Essen; Martin Hibbeln, University of Duisberg-Essen; Alexander Braun, University of St. Gallen

Cat bonds provide large yield spreads and low volatility compared to the corporate bond market. While there is an extensive literature that explains (ex-ante) cat bonds spreads, there is no factor model in the academic literature that explains their (ex-post) realized returns. Based on monthly quoted prices for the complete cat bond market from 2001-2020, we provide insights into relevant risk factors in the cross-section of cat bond returns. In preliminary results, we find that the initial probability of first loss as well as a measure that accounts for seasonal fluctuations strongly predict future cat bond returns. Based on these results we develop factor models for the expected excess returns (risk premiums) of cat bond portfolios. Controlling for probability of first loss, we can show that the type of trigger, the peril and the territory do not seem to be priced. However, we find that multi-peril and multi-location cat bonds carry a significant risk premium.

Discussant
avatar for Morton Lane

Morton Lane

Director, MSFE; President, Lane Financial LLC, University of Illinois
Dr. Morton N. Lane is the Director of the Master of Science in Financial Engineering program at the University of Illinois at Urbana-Champaign. The program started under him in 2010 and was recognized by TFE “The Financial Engineer” as the 2021, 4th best FE program in North America.Dr... Read More →

Presenters
MH

Markus Herrmann

University of Duisburg-Essen
AB

Alexander Braun

University of St. Gallen



Wednesday August 4, 2021 1:00pm - 2:30pm EDT

1:00pm EDT

7D Earnings Management ⚑ (Moderator - David Sommer, St. Mary's University)
Session 7D
Paper 1: 1:00-1:30
Paper 2: 1:30-2:00
Paper 3: 2:00-2:30

Wednesday August 4, 2021 1:00pm - 2:30pm EDT
Room D

1:00pm EDT

7D1 Predicting Earnings Management from Qualitative Disclosures
Sandra Zoller, MRIC, LMU Munich; Andreas Richter, MRIC, LUM Munich; Johannes Jaspersen, Ludwig-Maximilians-Universität München

While analysts, customers, and lenders rely on financial disclosures to make decisions regarding a company, executives often manage the disclosed earnings. Detecting such practices is thus a concern for company stakeholders and regulators. Qualitative disclosures are an additional source of information about a company's financial situation, but executives likely attempt to hide their earnings management activity in these disclosures, as well. We use supervised machine learning models to predict earnings management by property and casualty insurers from the Management's Discussion and Analysis filings. For this, we utilize a new algorithm that interprets textual data conditional on the reported financial situation of the company. We show that the qualitative disclosures can predict earnings management, revealing that executives are unable to remove all subliminal messages from them. The results demonstrate that qualitative disclosures can be useful for earning about the accounting choices of companies.

Discussant
JB

Jill Bisco

Assoc. Professor Finance, The Univerity of Akron

Presenters
avatar for Sandra Zoller

Sandra Zoller

MRIC, LMU Munich
JJ

Johannes Jaspersen

Ludwig-Maximilians-Universität München



Wednesday August 4, 2021 1:00pm - 2:30pm EDT

1:00pm EDT

7D2 Does Earnings Reclassification Change Firm's Information Asymmetry? Evidence from Public Banks and Insurers
Dan Yang, University of Georgia; James Carson, University of Georgia; Evan Eastman, Florida State University; John Campbell, University of Georgia

In 2016, the Financial Accounting Standard Board (FASB) issued an accounting standard update - FASB No. 2016-01 - that requires equity investments to be measured at fair value with changes in fair value recognized in net income. Prior to the passage of this update, firms reported unrealized gains and losses as other comprehensive income (OCI) for income statement purposes. The earnings reclassification of equity investments will have the most impact on public institutions that hold significant equities measured at fair value, so this study focuses on U.S. public insurers and banks. Specifically, we study how this new earnings reclassification impacts firm’s information asymmetry measured by bid-ask spreads around earnings announcement. Our results show that the earnings reclassification required by FASB No. 2016-01 decreases the bid-ask spreads around earnings announcement for firms with equity investments measured at fair value.

Discussant
Presenters
DY

Dan Yang

University of Georgia
JC

Jim Carson

University of Georgia
avatar for Evan Eastman

Evan Eastman

Florida State University



Wednesday August 4, 2021 1:00pm - 2:30pm EDT

1:00pm EDT

7D3 Measuring Managerial Discretion in the Insurance Industry
Martin Grace, Fox College of Business, Temple University; James Leverty, University of Wisconsin

Financial reporting standards require property-liability insurance companies to disclose year-by-year revisions of their estimated future claim payments. These revisions have inspired researchers to use the industry to measure and investigate managerial discretion.  The most widely used measure of managerial discretion in the insurance literature is reserve error --  the difference between a firm’s estimate of losses reported in the current period and a revised estimate reported in the future. We argue that the reserve error does not comport with how insurers establish loss reserves. Moreover, the reserve error uses reported numbers representing ex post information (i.e., information after the manager exercised decision). The measure is also greatly influenced by intervening events that are outside the control of management. We propose a new measure of managerial discretion that is consistent with reserving practices at insurance companies. The new measure captures the distinction between choice and decision while also accounting for the latitude that managers have in making their decision. We compare the two measures and find that our new measure is consistent with the hypothesized incentives to practice discretion.

Discussant
avatar for Evan Eastman

Evan Eastman

Florida State University

Presenters
avatar for Martin F Grace

Martin F Grace

Temple University
Martin F. Grace has been an ARIA member since 1988 and has served or chaired on several committees during his membership. He is happy to be one of a number of ARIA past-Presidents!
avatar for Ty Leverty

Ty Leverty

University of Wisconsin-Madison
Tyler Leverty is an Associate Professor in the Department of Risk and Insurance at the University of Wisconsin-Madison. He holds the Gerald D. Stephens CPCU Distinguished Chair in Risk Management and Insurance.  He is a Senior Editor of the Journal of Risk and Insurance, the current... Read More →



Wednesday August 4, 2021 1:00pm - 2:30pm EDT

1:00pm EDT

7E Forecasting, Pooling & Diversification ⚑ (Weili Lu, California State Univeristy-Fullerton)
Session 7E
Paper 1: 1:00-1:30
Paper 2: 1:30-2:00
Paper 3: 2:00-2:30

Wednesday August 4, 2021 1:00pm - 2:30pm EDT
Room E

1:00pm EDT

7E1 Rank Portfolio Insurance Strategies: An Almost Stochastic Dominance Approach
Hsuan Fu, Université Laval

This paper examines whether a buy-and-hold strategy outperforms a portfolio insurance strategy for most risk-averse investors. We further compare the performance among stop-loss, synthetic put and constant proportion portfolio insurance. A utility-based nonparametric performance measure, almost stochastic dominance, is adopted. To apply the measure, we establish statistical estimation and tests, which could take into consideration time dependency. We find that buy-and-hold strategy significantly outperforms all of the portfolio insurance strategies under a two year investment horizon. Among the portfolio insurance strategies, synthetic put is the most appealing, followed by constant proportion, and stop-loss is the least preferred.

Discussant
TJ

Tim Jaeger

Universitaet Hamburg

Presenters
HF

Hsuan Fu

Assistant Professor, Université Laval



Wednesday August 4, 2021 1:00pm - 2:30pm EDT

1:00pm EDT

7E2 Extreme price changes and individual forecasting behavior
Tim Jaeger, Universtaet Hamburg; Lisa Posey, Pennsylvania State University; Petra Steinorth, University of Hamburg

We conduct an experiment in which individuals forecast an autoregressive time series that occasionally includes extreme price changes. Overall, we find that extreme price changes decrease forecasting accuracy. Depending on the process, we see an increase of absolute forecasting errors up to 30%. Adding occasional extreme price changes specifically biases estimates upwards, i.e. subjects systematically overestimate outcomes. In addition, we observe that large price changes increase extrapolative biases, i.e. individuals overweight the deviation of current round's realization from last round's rational expectation.

Discussant
PW

Po-Lin Wang

University of South Florida

Presenters
TJ

Tim Jaeger

Universitaet Hamburg
PS

Petra Steinorth

University of Hamburg
LP

Lisa Posey

Penn State University



Wednesday August 4, 2021 1:00pm - 2:30pm EDT

1:00pm EDT

7E3 Pooling mortality risk in Eurozone state pension liabilities: an application of a Bayesian coherent multi-population cohort-based mortality model
Po-Lin Wang, University of South Florida; David McCarthy, University of Georgia

We design a coherent cohort-based multi-population mortality model, calibrate it to national mortality rates in the Eurozone using Human Mortality Database data, and use it to project developments in national mortality across the Eurozone. Combining this model with a stylized model of social security pensions in each country allows us to estimate the benefits of pooling the mortality risks in these systems. We examine three risk pools, which are all actuarially fair, but differ in how undiversifiable risk is allocated across countries. The first naïve approach allocates undiversifiable risk in proportion to GDP, a second according to a CAPM-based measure of the undiversifiable risk each country contributes to the pool and a third ensures that the aggregate benefits of diversification are shared equitably across countries. In all cases, the benefits of risk pooling increase over time as mortality uncertainty accumulates, but fall over time as cross-country correlation increases due to the long-term dominance of the mortality trend, which by assumption is shared between countries. The peak benefit occurs around 2050, with an aggregate reduction in the standard deviation of pension expenditures of around 0.11% of GDP. We find that risk-adjusting premiums is necessary to ensure an efficient allocation of undiversifiable risk across countries, given that different countries have markedly different pension mortality risk due to different pension system generosities as well as different mortality correlation with the Eurozone. Based on our results we propose a contract design that surmounts most of the moral hazard risks created by the pool, and suggest directions for future research.

Discussant
HF

Hsuan Fu

Assistant Professor, Université Laval

Presenters
PW

Po-Lin Wang

University of South Florida
DM

David McCarthy

University of Georgia



Wednesday August 4, 2021 1:00pm - 2:30pm EDT

2:45pm EDT

Doctoral Student Workshop ⚑
1) Editor's Round Table: Joan Schmit (Journal of Risk and Insurance; Patty Born (Risk Management and Insurance Review); Casey Rothschild (Geneva Risk and Insurance Review); Dani Bauer (North American Actuarial Journal).  Note: Open to all attendees.
2) Doctoral Student Additional Topics


Presenters
avatar for Casey Rothschild

Casey Rothschild

Hess Professor of Economics, Wellesley College
Co-editor, Geneva Risk and Insurance ReviewResearch Interests: Insurance; Taxation
DB

Dani Bauer

University of Wisconsin
JS

Joan Schmit

University of Wisconsin-Madison
avatar for Patty Born

Patty Born

Florida State University
Dr. Patricia Born is the Midyette Eminent Scholar in Risk Management and Insurance in the Department of Risk Management/Insurance, Real Estate and Legal Studies at Florida State University’s College of Business. She also serves as advisor of the Risk Management and Insurance doctoral... Read More →


Wednesday August 4, 2021 2:45pm - 4:00pm EDT
General Session

4:15pm EDT

Board Meeting: Conference Follow Up (By Invitation Only) ⚑
This is a brief Board Meeting to follow the conference.

Presenters
avatar for Ty Leverty

Ty Leverty

University of Wisconsin-Madison
Tyler Leverty is an Associate Professor in the Department of Risk and Insurance at the University of Wisconsin-Madison. He holds the Gerald D. Stephens CPCU Distinguished Chair in Risk Management and Insurance.  He is a Senior Editor of the Journal of Risk and Insurance, the current... Read More →


Wednesday August 4, 2021 4:15pm - 5:00pm EDT
General Session
 
  • Timezone
  • Filter By Date ARIA 2021 Annual Meeting Aug 1 - 4, 2021
  • Filter By Venue Virtual Conference
  • Filter By Type
  • Board Member Events
  • Break
  • Concurrent 1
  • Concurrent 2
  • Concurrent 3
  • Concurrent 4
  • Concurrent 5
  • Concurrent 6
  • Concurrent 7
  • Doctoral Session
  • Exhibits
  • General Session