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.
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.
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.
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.
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.
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
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.
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.
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.
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.
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.
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 →
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.
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.
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.
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.
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.
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 →
