Existence Of Adverse Selection Research Articles

Can Voluntary Insurance ensure risk-free digital-banking in Chinese-economy: seeking attentions?

ABSTRACT In today’s business-world, services are carried out in a competitive manner country-wise such as China. Banking services are no different, which has resulted digital-banking. Bank Laws regulated by Central-Bank of China are characterized by evolving many factors that are often unpredictable. It faces serious pitfalls being it riskiness. Most cases, customers don’t read terms & conditions of services. Customers don’t save contract-copy. These weaknesses cause abuses. Customer faces perceived-risk. Dealing with challenges in Chinese-economy, application of Akim’s model - Voluntary Insurance (VI) can be impetus for policy-design, which can increase number of users. Welfare Analyses are used for guidance on setting insurance-price ensuring customer’s efficiency-cost so that the VI becomes appealing to parties involved. It can lead to higher number-of-users. In scenario, bank itself is an insurance-seller, the existence of adverse-selection is detected. Here estimated welfare-cost associated with inefficient-pricing created by adverse-selection is quantitatively small; however, advantageous-selection results opposite. Welfare assessment under alternative policy intervention in Chinese-economy will be vital for future-study.

Risk shifting in the context of 3D printing: an insurability perspective

The adoption of 3D printing poses considerable liability risk to digital designers and fabricators. Traditionally, liability insurance is considered a crucial way for parties to shift their risk. However, in the context of 3D printing, uninsurability may serve as an obstacle for risk shifting. The main interest of this article is twofold. On the one hand, it sketches the extent to which risk can be unforeseeable (and thus uninsurable) in the context of 3D printing when legal uncertainties and the existence of adverse selection and moral hazard are considered. On the other hand, by reviewing various instruments, it offers potential solutions for reducing the uninsurability problem. Specific emphasis is given to applying InsurTechs, especially blockchain technology, to improve insurability and to identify the problems that will constrain the promotion of InsurTech in the context of 3D printing.

Appraisal Inflation and Private Mortgage Securitization

Lenders’ access to soft information on appraisal inflation could lead to adverse selection in private mortgage securitization. Combining a nationwide mortgage data with a real estate transaction data and using a difference-in-differences empirical design, we document that securitized refinance loans have more than 3% higher appraisal inflation than portfolio loans at key LTV notches. At those notches, securitized mortgages are more likely to default by 19 to 50% in relative terms. The additional credit risk associated with the appraisal inflation on sold notch loans does not seem to be priced in the mortgage rate. The results are robust after controlling for servicer and lender effects, and hold when we infer appraisal inflation from repeat sale transactions or hedonic price estimates. These findings indicate the existence of adverse selection in private securitization where lenders sell mortgages with higher appraisal inflation to MBS investors and keep mortgages with lower appraisal bias in their own portfolios, without compensating investors for the additional credit risk.

Health Uninsurance in rural America: a partial equilibrium analysis

BackgroundThe cost of rural health continues to be high in the United States despite an overall improvement in national health insurance enrolment. Stakeholder’s perception of adverse selection remains a paramount culprit in the challenges of rural insurance markets. Risk attitude has been revealed as an alternative for measuring this phenomenon, given the 2014 prohibition law on pre-existing conditions and a subsequent repeal in 2018 accompanied by extensive debate among congress. We examine the existence of adverse selection in rural insurance markets by comparing the effects of pre-existing or chronic health conditions and risk attitudes in a Principal-Agent model.ResultsUsing multinomial logit and complementary log-log binomial link models in a Principal-Agent framework, our results indicate that there is adverse selection in rural health insurance markets if pre-existing conditions are considered, but risk attitudes yield contrary effects.ConclusionsThe major policy implication from this study is that respondents who have pre-existing/chronic conditions tend to patronise health insurance with a higher probability than other counterparts and therefore insurers are likely to incur losses given the law on pre-existing conditions as private information. The 2018 law on the exclusion of individuals with pre-existing conditions may be beneficial to the insurance companies at the expense of the populace. Hence, we suggest that market incentive-based programs should be encouraged to minimize rural health uninsurance.

Evaluation of the enrolment of health insurance after the integration between the New Cooperative Medical Scheme and the Urban Residents Basic Medical Insurance scheme in Hangzhou, China: a longitudinal study

BackgroundThe recent integration between the New Cooperative Medical Scheme (NCMS) and the Urban Residents Basic Medical Insurance (URBMI) into the Urban and Rural Resident Basic Medical Insurance (URRBMI) scheme has reduced the disparity among one billion rural and urban Chinese people. During the transition, URRBMI in some provinces provided two to three different plans with graded contributions and corresponding benefit packages; however, how enrolees make decisions among different plans is still unknown. Our study therefore aimed to provide the first longitudinal analysis on the enrolment of health insurance after the integration of NCMS and URBMI. MethodsWe did a longitudinal study in Hangzhou, China. NCMS and URBMI in Hangzhou were integrated in 2011, and URRBMI had two packages: contribution for plan A was CNY1200 and plan B was CNY800. Both plans have the same benefits for hospital admission, whereas plan B has better benefits for outpatient visits. A prospective cohort of more than 800 households was established in 2009 and followed up annually for 5 years by the same household health survey. Individuals enrolled in URBMI–NCMS–URRBMI with at least two observations were eligible for analysis. The primary outcome was the association between insurance enrolment decision and the enrolees' health condition in the previous year. Demographic, socioeconomic, self-reported health (measured by the visual analogue scale [VAS] score of 1–100), health need, use of services, household income, and satisfaction on insurance in surveyed year T (2009–12) were inputted as independent variables; and enrolment decision (ie, upgrade or downgrade) in Year T + 1 (2010–13) was inputted as a dependent variable for the multi-level regression model with random effect. Any change from uninsured to URRBMI or from plan B to plan A was defined as an upgrade, whereas a change from URRBMI to uninsured or from plan B to plan A was defined as a downgrade. The protocol was reviewed and approved by the Institutional Review Board of the School of Public Health, Fudan University, and all participants of this study gave written consent. FindingsBetween June 1, 2009, and Aug 31, 2013, 1576 individuals with 5171 records (3595 pair of observations) were included, of whom 958 (26·6%) upgraded, 568 (15·8%) downgraded, and the rest remained on the same plan during the observation. Age, marriage, and household income significantly influenced the enrolment decision; whereas sex, education, or household size had no influence. Individuals with a VAS score of 0–59 were 37·2% more likely to upgrade their plan (p=0·041) than those with a VAS score of 80–89; individuals with one to three outpatient visits for non-communicable diseases within 3 months before the survey were 80·5% less likely to downgrade their plan than those without use of these services for non-communicable diseases (p=0·029); and individuals with hospital admissions were 58·4% less likely to downgrade than those who remained on the same plan (p=0·017). Condition of self-reported health status (ie, VAS score) and service use in the previous year significantly influenced individuals' insurance enrolment decision, indicating the existence of adverse selection. InterpretationEnrolment flexibility within URRBMI is intended to serve different affordability but is accompanied with adverse selection, which might endanger the sustainability of insurance funds. Family enrolment should be encouraged at this current stage, and compulsory insurance with subsidies for people who live in poverty is recommended to achieve long-term universal health coverage in China. FundingCMB Collaborative Program on Pharmaceutical Policy and Economics and the Fourth Round of Shanghai Three-year Action Plan on Public Health Discipline and Talent Program: Evidence-based Public Health and Health Economics (15GWZK0901)

Testing Adverse Selection Using Frank Copula Approach In Iran Insurance Markets

Existence of adverse selection in insurance markets could have irreversible effects on enterprise decision-making process and obligations of insurance companies. In this article, testing adverse selection is done by jointly modeling the coverage selection and accidents frequency using Frank's copula, where the dependence parameter states the existence of relationship between coverage selection and the frequency of accidents. Our margins are modeled by ordered logistic regression model for the coverage selection and negative binomial regression model for the accidents frequency. The copula model is calibrated using 59,547 one-year cross-sectional cases of collision insurance coverage of Iran Insurance co. The results indicate a significant positive coverage selection-accidents frequency relationship.

Evidence of Adverse Selection in the Group Insurance Market

This paper demonstrates the existence of adverse selection in the group insurance market with no individual choice. We provide evidence against the “conventional wisdom” that group insurance mitigates adverse selection because of the mixture of high risks and low risks. We show, however, that asymmetric learning effects mitigate the group adverse selection after a few policy periods.

Price efficiency in the Dutch Annuity Market

AbstractWe provide the first analysis of annuity rates in the Netherlands for the period 2001–2012. During this period, the number of annuity providers was high and stable, and we find that falls in annuity rates can be explained entirely by changes in yields and life expectancy. We show that annuitants could have increased their annuity income by about 5%, by shopping around and purchasing their annuities from alternative providers. Money's worth calculations show that the market is efficient by international standards, with a money's worth above 0.9 for the whole period and close to unity by the end of the period. We present conflicting evidence on the existence of adverse selection because although we find money's worths are inversely related to age of purchase, we find that they are positively related to size of purchase.

Price Efficiency in the Dutch Annuity Market

We provide the first analysis of annuity rates in the Netherlands for the period 2001-2012. During this period, the number of annuity providers was high and stable and we find that falls in annuity rates can be explained entirely by changes in yields and life expectancy. We show that annuitants could have increased their annuity income by about 5%, by shopping around and purchasing their annuities from alternative providers. Money’s worth calculations show that the market is efficient by international standards, with a money’s worth above 0.9 for the whole period and close to unity by the end of the period. We present conflicting evidence on the existence of adverse selection because although we find money’s worths are inversely related to age of purchase, we find they are positively related to size of purchase.

Testing for adverse selection of crop insurance in northern China

PurposeThe purpose of this paper is to examine the efficiency of current subsidized crop insurance products (SCIPs) in Miyun county, in northern China, by testing the existence of adverse selection.Design/methodology/approachThe authors examine the efficiency of SCIPs from a farmers' point of view by testing the existence of adverse selection using nonparametric tests and logit regression on data from individual interviews in Miyun County. Due to adverse selection, producers with more risk should be more likely to buy crop insurance in pursuit of the benefits from SCIPs.FindingsHowever, both methods conclude no existence of adverse selection, which indicates that the programs are inefficient. This may not be surprising based on the issues of concern cited above. The opportunities and challenges of a growing interest in weather index insurance are discussed toward the end of the paper.Originality/valueThis paper weaves together literature on traditional and weather index insurance, along with primary data from a survey, to examine the pros and cons of each type of insurance. Implications for policy makers are to compare the tradeoffs between concerns of the two types of insurance examined here, traditional and weather index insurance. Ultimately, the political goals might best determine which option is most desirable.

Health Risk, Income, and Employment-Based Health Insurance

While many believe that an individual’s health plays an important role in both their willingness and ability to obtain health insurance in the employment-based setting, relatively little agreement exists on the extent to which health status affects coverage rates, particularly for those with lower incomes. In this paper, we examine the relationship between health risk and the purchase of group health insurance and whether that relationship differs by a person’s income and whether they obtain coverage in the small, medium, or large group market. Using the panel component of the 1996-2002 Medical Expenditure Panel Survey (MEPS), we find that health risk is positively associated with private health insurance across the different markets, and that this positive relationship is stronger for low and middle income people, particularly in the large group market. Our results are consistent with the existence of adverse selection in the group market in the form of low rates of coverage among low risks due to an absence of risk rating of premiums. We conclude that pooled premiums for low risks, particularly those with low incomes, may represent a more important financial barrier to coverage in voluntary group insurance than high premiums for high risks.

WHY IS THE TAKE‐UP OF MICROINSURANCE SO LOW? EVIDENCE FROM A HEALTH INSURANCE SCHEME IN INDIA

Insurance for the poor, called microinsurance, has recently drawn the attention of practitioners in developing countries. There are common problems among the various schemes: (1) low take‐up rates, (2) high claim rates, and (3) low renewal rates. In the present paper, we investigate take‐up decisions using household data collected in Karnataka, India, focusing on prospect theory, hyperbolic preference, and adverse selection. Prospect theory presumes that people behave in a risk‐averse way when evaluating gains but in a risk‐loving way when evaluating losses. Because insurance covers losses, the risk‐loving attitude toward losses might explain the low take‐up rates, and we find weak empirical support for this. Households with hyperbolic preference were more likely to purchase insurance, consistent with our theoretical prediction of demand for commitment. We also find some evidence on the existence of adverse selection: households with a higher ratio of sick members were more likely to purchase insurance.

Securitization and Mortgage Default

The academic literature, the popular press, and policymakers have all debated securitization's contribution to the poor performance of mortgages originated in the run-up to the recent crisis. Theoretical arguments have been advanced on both sides, but the lack of suitable data has made it difficult to assess them empirically. The author examines this issue by using a loan-level data set from LPS Analytics, covering approximately two-thirds of the mortgages originated in 2005 and 2006, and including both securitized and nonsecuritized loans. The author finds evidence that privately securitized loans do indeed perform worse than observably similar, nonsecuritized loans. Moreover, this effect is strongest in prime mortgage markets, which have not been studied in the previous literature. For example, a typical prime loan becomes delinquent at a 20 percent higher rate if it is privately securitized, ceteris paribus. This is consistent with the existence of adverse selection; that is, that lenders used information not available to investors to securitize loans that were riskier than they otherwise appeared. By contrast, for subprime mortgages, the impact of private securitization is concentrated in low or no-documentation loans; this latter result is consistent with previous work such as Keys et al. (2009).

Multilevel Governance at Work: Evidence from Structural Funds Management in Lombardia, Italy

Multilevel governance is widely recognized as one of the striking features of local development policy implementation and management. In Lombardia, Italy, this framework has been applied in the context of European Regional Development Fund actions in order to increase the number and quality of projects. As a consequence the governance of regional development policies now has new meta-actors: the Programmi Integrati per lo Sviluppo Locale (PISL) aimed at promoting and soliciting projects to be submitted for funding by the regional government. In this paper we evaluate the impact of this new governance structure by estimating a discrete choice model over a sample of more than 6000 projects submitted for funding to the Regional Government of Lombardia. We find that projects within the context of the PISL have a slightly greater probability of being funded, although we cannot exclude the existence of adverse selection because we also find that those projects are, on average, of lower quality from a purely formal viewpoint. We finally argue in favour of this new governance structure, even though we identify some critical points to be addressed in the next planning period in order to enhance the effectiveness of development policies.

Adverse Selection, Short-Term Contracting, and the Underprovision of On-the-Job Training

Abstract This article argues that the existence of adverse selection (worker heterogeneity) can explain the underprovision of general training by employers. High-ability workers value the option to entertain outside wage offers once their abilty becomes known to the market. Offering short-term contracts is, therefore, a way to screen high-ability types from low-ability types. A firm is not willing to train workers under short-term contracts. Hence, despite the positive returns to training, training may be underprovided in equilibrium. More generally, this article contributes to the literature that seeks to explain the puzzling phenomenon of short-term contracts governing long-term buyer-seller relationships.

Investment and Finance in de novo private firms: Empirical Results from the Czech Republic, Hungary and Poland

In this paper we use a survey of 281 Czech, Hungarian and Polish newly‐established small private firms in order to shed some light on the constraints these firms face in the credit market. The results of our survey show that imperfections in capital markets in Central European economies do not seem to actually inhibit the growth of new private firms. Credit markets do exist for de novo private firms in the three Central European transition economies studied, and they provide quite a large amount of financing from an early stage of the existence of firms. Financial intermediation works reasonably well as far as de novo private firms are concerned: loss‐making de novo firms have a lower probability of getting credit than profitable ones. Banks protect themselves against the risk of a deteriorating pool of borrowers by requiring collateral for their loans. We do not find convincing evidence concerning the existence of adverse selection. Loss‐making firms are not ready to pay higher interest rates than profitable firms and are not more likely to ask for credit than profitable firms.