Are the dimensions of private information more multiple than expected? Information asymmetries in the market of supplementary private health insurance in England

Our study reexamines standard econometric approaches for the detection of information asymmetries on insurance markets. We claim that evidence based on a standard framework with 2 equations, which uses potential sources of information asymmetries, should stress the importance of heterogeneity in the parameters. We argue that conclusions derived from this methodology can be misleading if the estimated coefficients in such an `unused characteristics' framework are driven by different parts of the population. We show formally that an individual's expected risk from the perspective of insurance, conditioned on certain characteristics (which are not used for calculating the risk premium), can equal the population's expectation in risk { although such characteristics are both related to risk and insurance probability, which is usually interpreted as an indicator of information asymmetries. We provide empirical evidence on the existence of information asymmetries in the market for supplementary private health insurance in the UK. Overall, we found evidence for advantageous selection into the private risk pool; ie people with lower health risk tend to insure more. The main drivers of this phenomenon seem to be characteristics such as income and wealth. Nevertheless, we also found parameter heterogeneity to be relevant, leading to possible misinterpretation if the standard `unused characteristics' approach is applied

UK State Pension Reform in a Public Choice Framework

Social security systems for old age have been explicitly studied in a public choice framework for over 30 years. They illustrate extremely well the problems of allocating economic resources through a system of voting. Pension systems also currently provide some of the most significant threats to the long-term budget positions of developed countries, a point that was made in the Nobel Laureate lecture of Professor James Buchanan. In this paper, we look at the costs and benefits that will be faced by different groups of voters as a result of state pension reform in the UK. It is shown that state pension systems will be very difficult to reform in ways that reduce government provision. However, an exception to this general rule is that reform by raising retirement ages may well be politically feasible. These results are in accordance, not just with theoretical work, but with other empirical work and practical observations

The market potential for privately financed long term care products in the UK

This paper considers the market potential for privately financed long term care products in the UK. It finds that since the present market is undeveloped there is scope to increase the range of products available to suit people with different means and circumstances. Currently the UK spends about £19 billion on long term care (LTC) of which around a third is privately funded and two thirds publicly funded. The cost of informal care for older people is estimated to be worth £58 billion a year making a total of £77 billion. The paper finds that very few people can afford to pay for LTC out of their own pockets from income alone, but that this number is increased if savings are taken into account and significantly increased if housing wealth is included as well. Insurance for LTC is normally considered to be part of the product mix usually associated with the private funding of LTC. However, as the US market demonstrates, LTC insurance products can be complex and difficult to understand and yet still not meet all needs, whilst US research suggests that policies are also over priced and unaffordable for many. In this paper the case is made for other kinds of products which produce an income at the point of need and therefore make a contribution towards LTC costs. These products include equity release, ‘top up insurance’, disability linked annuities, and immediate needs annuities. Although they may not cover all possible risks, and therefore all needs, they would bring much needed new money into LTC as well as lead to an increase in personal responsibility. With large numbers of older people on very low incomes not everybody would be able to afford these products and so the concept of LTC bonds is considered. These would work like premium bonds and pay prizes but would only be cashable at the point of need. Taken together all of the products considered would extend choice and there would be something to meet most circumstances. The government’s role would be five fold: (1) to facilitate the introduction of the LTC products and provide regulation; (2) to provide appropriate incentives for people to take them up; (3) to clarify the role of the state in terms of the minimum entitlement people can expect; (4) to make it easier to get advice and direction at points of initial contact, for example with social and health care services; and (5) to cover risks that the market cannot handle

To split or not to split: Capital allocation with convex risk measures

Convex risk measures were introduced by Deprez and Gerber (1985). Here the problem of allocating risk capital to subportfolios is addressed, when aggregate capital is calculated by a convex risk measure. The Aumann-Shapley value is proposed as an appropriate allocation mechanism. Distortion-exponential measures are discussed extensively and explicit capital allocation formulas are obtained for the case that the risk measure belongs to this family. Finally the implications of capital allocation with a convex risk measure for the stability of portfolios are discussed

Is There Lending Rate Stickiness in the Chilean Banking Industry?

This paper provides new empirical evidence on macroeconomic policies and results in Latin America and the Caribbean (LAC), based on recent data for the region and the world at large. Our results show that: (i) both monetary and fiscal policies are counter- (pro-) cyclical when credibility is high (low), (ii) the accuracy of inflation-targeting central banks in meeting their targets rises with central bank independence and declines with country risk, (iii) intermediate exchange-rate regimes became less persistent than hard pegs and floats after the Asian crisis, (iv) exchange rate regimes do matter for inflation and growth – and regime transitions have significant output and inflation consequences (v) international differences in productivity growth do not track well real exchange rate (RER) trends and RER misalignments are not resolved by supply reforms that raise growth, (vi) LAC’s financial integration with international capital markets has increased significantly during the last decade, (vii) adverse foreign shocks explain a major part of LAC’s growth performance during the 1990s, and (viii) the composition of foreign capital flows does matter for growth.

Impact of firm specific and macroeconomic factors on financial performance of the UAE insurance sector

This study analyses the impact of firm specific and macroeconomic factors on the profitability of the insurance sector in UAE during the period of 2009–2013. In the recent past, the global insurance sector was impacted by the ripple effect of the financial crisis of 2007–2008. Along the lines of the global trend, although profitability of the UAE, insurance sector witnessed a decline from 2008–2010, the spur in its growth rates (10%) in 2012 and 2013 is impressive compared to the negative growth rate in developed markets. Our research contributes to the existing body of knowledge on financial performance of the insurance sector post the global financial crisis. Our results indicate that within the firm specific factors; company size, growth in gross written premium (GWP), leverage, investment ratio and market share are statistically significant in explaining profitability of the insurance companies. Further, GDP growth has a significant positive influence on profitability