Insurance Payouts Research Articles

The Slavery of the Not So Talented

The article sets forth Ronald Dworkin’s efforts to avert the slavery of the talented within his theory of equality, so that they are not forced to work full-time at one type of job, but then criticises Dworkin for failing to apply similar concerns to not so talented workers. It argues that he overlooks the problem of the slavery of the not so talented that results from the tough rules he proposes for dealing with insurance payouts. Finally, it tries to show how this unfairness can be avoided with a better interpretation of the likely outcome of his hypothetical insurance experiment given a better understanding of the motivations of parties operating within that experiment.

Application of Structural Conditionality - 2009 Annual Report

Motivation and approach. Last year’s major reforms of the Fund’s lending instruments, together with the commitment to treble its resources, made a significant contribution to global stabilization as Fund lending created room for policy accommodation and helped countries weather the worst of the crisis. While these reforms have yielded positive results, it is appropriate to ask—as the IMFC has—whether there is scope to build on this experience. This paper tries to answer this question, including by drawing on the lessons of the crisis, as perceived by policymakers, market participants, and academic observers, with whom Fund staff has consulted extensively. While every effort has been made to explore the pros and cons of various reform options neutrally, some options are clearly more evolutionary (e.g., those building on last year’s headline introduction of the Flexible Credit Line or FCL), while others are of a more radical nature (e.g., Fund provision of pure insurance payouts or collateralized lending). This paper focuses on the former, covering the latter set of ideas in a supplement. Once the Executive Board has had a chance to comment on all options, a more defined and specific set of proposals could be developed by staff for further consideration.

Stochastic modelling of direct costs of pancreas disease (PD) in Norwegian farmed Atlantic salmon ( Salmo salar L.)

An economic model for estimating the direct costs of disease in industrial aquaculture was developed to include the following areas: biological losses, extraordinary costs, costs of treatment, costs of prevention and insurance pay-out. Direct costs of a pancreas disease (PD) outbreak in Norwegian farmed Atlantic salmon were estimated in the model, using probability distributions for the biological losses and expenditures associated with the disease. The biological effects of PD on mortality, growth, feed conversion and carcass quality and their correlations, together with costs of prevention were established using elicited data from an expert panel, and combined with basal losses in a control model. Extraordinary costs and costs associated with treatment were collected through a questionnaire sent to staff managing disease outbreaks. Norwegian national statistics for 2007 were used for prices and production costs in the model. Direct costs associated with a PD-outbreak in a site stocked with 500,000 smolts (vs. a similar site without the disease) were estimated to NOK (Norwegian kroner) 14.4 million (5% and 95% percentile: 10.5 and 17.8) (NOK = €0.12 or $0.17 for 2007). Production was reduced to 70% (5% and 95% percentile: 57% and 81%) saleable biomass, and at an increased production cost of NOK 6.0 per kg (5% and 95% percentile: 3.5 and 8.7).

Co‐opetition and Investment for Supply‐Chain Resilience

This paper considers the problem of disruption risk management in global supply chains. We consider a supply chain with two participants, who face interdependent losses resulting from supply chain disruptions such as terrorist strikes and natural hazards. The Harsanyi–Selten–Nash bargaining framework is used to model the supply chain participants' choice of risk mitigation investments. The bargaining approach allows a framing of both joint financing of mitigation activities before the fact and loss‐sharing net of insurance payouts after the fact. The disagreement outcome in the bargaining game is assumed to be the result of the corresponding non‐cooperative game. We describe an incentive‐compatible contract that leads to First Best investment and equal “gain” for all players, when the solution is “interior” (as it almost certainly is in practice). A supplier that has superior security practices (i.e., is inherently safer) exploits its informational advantage by extracting an “information rent” in the usual spirit of incomplete information games. We also identify a special case of this contract, which is robust to moral hazard. The role of auditing in reinforcing investment incentives is also examined.

Co-opetition and Investment for Supply-Chain Resilience

This paper considers the problem of disruption risk management in global supply chains. We consider a supply chain with two participants, who face interdependent losses resulting from supply chain disruptions such as terrorist strikes and natural hazards. The Harsanyi-Selten-Nash bargaining framework is used to model the supply chain participants' choice of risk mitigation investments. The bargaining approach allows a framing of both joint financing of mitigation activities before the fact and loss-sharing net of insurance payouts after the fact. The disagreement outcome in the bargaining game is assumed to be the result of the corresponding non-cooperative game. We describe an incentive compatible contract that leads to First Best investment and equal 'gain' for all players, when the solution is 'interior' (as it almost certainly is in practice). A supplier that has superior security practices (i.e., is inherently safer) exploits its informational advantage by extracting an 'information rent' in the usual spirit of incomplete information games. We also identify a special case of this contract, which is robust to moral hazard. The role of auditing in reinforcing investment incentives is also examined.

Climate Change Impact on Rice Insurance Payouts in Japan

Abstract The authors constructed the framework for a preliminary assessment of climate change impact on the rice insurance payout in Japan. The framework consisted of various models ranging from climate projection downscaling, rice yield estimation, yield loss assessment, and rice insurance payout estimation. In this study, a simulation was conducted based on the dynamically downscaled regional climate projection with a lateral boundary condition given by the global climate projection of the Meteorological Research Institute Coupled General Circulation Model, version 2 (MRI CGCM2), under the A2 scenario of the Special Report on Emission Scenarios (SRES). Results indicated that rice yield in the 2070s will decrease slightly in central and western Japan and increase in northern Japan. The increase in yield was derived from a significant reduction in yield loss caused by cool-summer damage; on the other hand, the decrease in yield was caused by the increase in yield loss caused by heat stress and the shortening of the growth period induced by the temperature rise. The increase in the atmospheric CO2 concentration resulted in an increase in paddy rice biomass because of the fertilization effect; however, the increase in biomass was not enhanced much as a result of shortening of the growth period if early planting was not considered as an adaptation practice. Reflecting such changes in yield, the rice insurance payout significantly decreased in northern Japan but only slightly increased in the areas of central and western Japan. In total, the 9-yr mean payout in Japan in the 2070s decreased to 120.2 billion yen; the value corresponded to 87% of the payout averaged over 9 yr in the 1990s (1991–99).

Age and Gender Effects on Auto Liability Insurance Payouts

AbstractWe examine the relationship between claimant demographic characteristics (specifically, gender, age, and marital status) and the relative size of automobile third‐party settlements. We present three possible theories to explain differences in payouts associated with gender and age: variations in risk attitudes, variations in negotiating costs, and discrimination. Results of empirical testing are consistent with differences in settlement amounts, particularly with respect to gender. These differences are examined and discussed along with suggestions for future research.

Payments to injured professional jockeys in British horse racing (1996–2006)

Objective:To determine the direct and indirect cost of injuries in professional jockeys as a result of race riding.Design:Cohort study.Setting:Professional horse racing.Participants:Professional jockeys in the UK registered with the Jockey Club.Main...

Patterns of Rainfall Insurance Participation in Rural India

Take-up of an innovative rainfall insurance policy offered to smallholder farmers in rural India decreases with basis risk between insurance payouts and income fluctuations, increases with household wealth, and decreases with binding credit constraints. These results are consistent with the predictions of a simple neoclassical model with borrowing constraints. Other patterns are less consistent with the benchmark model. For example, participation in village networks and measures of familiarity with the insurance vendor are strongly correlated with insurance take-up decisions, and risk-averse households are less, not more, likely to purchase insurance. These results may reflect household uncertainty about the product, given their limited experience with it.

Statistical Analysis of Rainfall Insurance Payouts in Southern India

Using 40 years of historical rainfall data, this paper estimates a distribution for payouts on rainfall insurance policies offered to farmers in the State of Andhra Pradesh, India, in 2006. The authors find that the contracts primarily protect households against extreme tail events; half the expected value of indemnities paid by the insurance are generated by only 2 percent of rainfall realizations. Contract payouts are significantly correlated cross-sectionally, and also inversely associated with real GDP growth. The paper discusses the implications of these findings for the potential benefits of insurance to households, the risks facing a financial institution underwriting rainfall insurance contracts, and pricing.

Equality of Talent Resources: Procedures or Outcomes?

In chapter 2 of Sovereign Virtue, Dworkin proposes the hypothetical insurance market as the most promising way of explaining what equality of resources requires, in the face of unequal talents. Roughly, this analytical device imagines that people take insurance coverage for lack of income-earning talent, assuming that everyone has the same risk of ending up anywhere, high or low, within the market reward structure of a society that equally distributes external resources. Levels of insurance coverage are offered on the understanding that policyholders pay premiums out of their future earnings, and that premiums must be sufficient to sustain insurance payouts at each level of coverage. Under these equal conditions, the insurance choices made by the community define the inequalities of earning power that equality of resources would permit. These choices are to be implemented as accurately as possible, through programs of tax and transfer. I have always been puzzled by this insurance argument, for the following reason. On the one hand, the argument strongly suggests a procedural view on what equality of resources demands, in the sense that whatever result emerges from the hypothetical insurance market is morally legitimate by virtue of responsible choice, and should for that reason be carried out faithfully in the design of society’s redistributive framework. Now Dworkin also argues that prudent insurance under

Guide for Protection of Equipment and Personnel from Lightning

Workable special protection methods to prevent lightning damage to equipment and possible harm to associated working personnel are presented. This document covers protection methods for ground potential rise, isolation, shielding, and grounding from lightning. Be warned: Protecting a structure from lightning does very little to protect the equipment within that structure, and the housed equipment is normally worth many times the value of the structure. Lightning damage to equipment results in losses exceeding twenty-six billion dollars annually in North America and nearly three times that worldwide, with more than 150 strikes per second. Insurance payout resulting from lightning damage accounts for approximately 6.5% of all property and casualty claims. Ironically, nearly all lightning damage to equipment can be prevented.

Liability Distributions for Mortgage Insurance

Option models can provide not only the value of an insurance policy, but also more disaggregated information concerning those precise circumstances under which defaults occur and, hence, insurance payouts must be made. The value of the insurance policy serves as a summary statistic describing insurance payouts. However, given the rather highly irregular and skewed character of the entire distribution of insurance payouts, this single value will be a poor estimate of the typical payout. Thus it should be of considerable interest to mortgage insurance issuers to know not only the expected cost of insurance, but also the entire distribution of potential payouts as exhibited in this study. Insurers have not traditionally differentiated prices among different homeowners' mortgage insurance policies as much as rational pricing or even common sense would seem to demand. The option model pricing techniques presented in this study provide the means of assessing differential mortgage insurance values.

A model of takeovers of foreign banks

This paper investigates the determinants of the takeover of a foreign bank by a domestic bank whereby the former becomes a branch of the latter. Each bank is initially supervised by a national agency that cares about closure costs and deposit insurance payouts, and may decide the early closure of the bank on the basis of supervisory information. Under the principle of home country control, the takeover moves responsibility for both the supervision of the foreign bank and the insurance of the foreign deposits to the domestic agency. It is shown that the takeover is more likely to happen if the foreign bank is small (relative to the foreign banking market) and its investments are risky (relative to those of the domestic bank). Moreover, the takeover is in general welfare improving for both countries.

A Model of Takeovers of Foreign Banks

This paper investigates the determinants of the takeover of a foreign bank by a domestic bank whereby the former becomes a branch of the latter. Each bank is initially supervised by a national agency that cares about closure costs and deposit insurance payouts, and may decide the early closure of the bank on the basis of supervisory information. Under the principle of home country control, the takeover moves responsibility for both the supervision of the foreign bank and the insurance of the foreign deposits to the domestic agency. It is shown that the takeover is more likely to happen if the foreign bank is small (relative to the foreign banking market) and its' investments are risky (relative to those of the domestic bank). Moreover, the takeover is in general welfare improving for both countries.

The pharmacoeconomics of neuromuscular blocking drugs.

The pharmacoeconomics of neuromuscular blocking drugs.

Liability Distributions for Mortgage Insurance

The option model in this paper derives not only the value of an insurance policy, but also more disagregated information concerning those precise circumstances under which defaults occurs, and hence, insurance payouts need be made. In other words, this paper demonstrates the option pricing techniques necessary to provide means of assessing, not just the fair market value of an insurance contract, but also the distribution of all possible claims, and the impact on these claims of any factor that might directly or even indirectly influence the default decision.

The Effects of Crop Yield Insurance Designs on Farmer Participation and Welfare

AbstractThe performance of individual farm yield and area yield crop insurance programs is evaluated for a representative Iowa corn farm using numerical optimization of expected utility and simulation techniques. Several different contract design features are studied, including the nature of the yield index which triggers insurance payouts, alternative restrictions on coverage levels, and alternative pricing structures. Performance is evaluated in terms of impacts on farmer participation and welfare and is examined in a portfolio setting where futures and options are also available to farmers. The relative performance of different crop insurance designs is found to be particularly sensitive to restrictions on coverage levels, the size of premium loadings, and the degree to which individual farm yields are correlated with area yields.

Costs and benefits of tropical cyclones, severe thunderstorms and bushfires in Australia

The historical frequency, distribution and impact of tropical cyclones, severe thunderstorms and bushfires in Australia are discussed. Although the climatological record of frequency and distribution is incomplete for some hazards, this information is more reliable than that available on the impacts of the hazards. Insurance payout costs form the best quantitative measure of negative impacts, but such figures represent only a fraction of the true costs of damage from severe weather. For tropical cyclones the insurance payout since 1967 has been $1715 million, for severe thunderstorms $1808 million and for bushfires $488 million. Tropical cyclones and storms each result in the loss of 4 to 6 lives each year, while bushfires have an average annual death toll of about 10. Although significant benefits arising from severe weather events can also be identified, quantitative estimates of their alue are not available.

Severe thunderstorms in New South Wales: Climatology and means of assessing the impact of climate change

A climatology of severe thunderstorms in the Australian State of New South Wales is described, using the data base of more than 1000 severe thunderstorm events held in the New South Wales Regional Office of the Bureau of Meteorology. Previously only a tornado climatology was described. Severe thunderstorms are the second most costly weather phenomenon in Australia (after tropical cyclones), on the basis of insurance payouts for major events since June 1967. Two thirds of this cost occurs in New South Wales. Severe thunderstorms show marked diurnal and seasonal distributions with maxima in the warmer months and during the late evening. Distributions are similar to those in the United States. The peak months for large and giant hail, tornadoes, strong winds and flash floods differ, being respectively November, December, January and February. While these temporal distributions are reasonably well defined, knowledge of the historical and spatial distributions is limited. A means of deriving a spatial distribution is given, which is based on the frequency near Sydney and the relative frequency at a time when there was a more uniform population distribution over the State. The climatology of severe thunderstorms is not an adequate basis for assessing the impacts of a future climate change. However, there are possible means of doing this utilising numerical climate models, and these are suggested.