Minimum Premium Research Articles

Analyzing the community decision making to purchase pet insurance: Case study of animal lovers in Indonesia

This study aims to measure people's decision-making to buy their pet insurance and compare it with the amount of insurance premium rates offered. It is important due to the increase in people's income which has triggered the birth of a community of pet lovers as part of the middle-class people’s lifestyle in Indonesia. The survey data was conducted using the Stated Preference (SP) format through questionnaires and interviews to determine the public response to pet insurance premiums. The collected data were analyzed using descriptive methods, decision-making analysis was on the basis of the choice of the dichotomous Contingent Valuation Method (CVM), and logistic regression analysis. Based on the calculation analysis using the logit method shows that the ability of the public to pay pet insurance premiums is IDR289,454.54. Analysis of calculations using the Turnbull method was obtained at IDR365,000.00. The results of the WTP amount, both using the logit method and using the Turnbull method, are greater than the minimum premium amount offered which is IDR190,000.00. The results of this study indicate that the premium rates for pet insurance offered are still within reasonable limits, compared to the size of the decision-making by the animal lover community in Indonesia. This provides a very good prospect for insurance companies that have insurance products for pets in Indonesia. This study was conducted to provide empirical evidence that the decision-making of the animal lover community is greater than the premium rate for pet insurance that has been offered. Thus, this research strongly supports the development of pet insurance companies in Indonesia, which can provide pet protection to stay healthy and well looked after.

Fair Insurance Cover for Export Credit Under OECD Pricing Framework

This article aims to analyse the issue of a lack of rules on the insurance cover of interest from an OECD perspective during the period 2010-2020. Export credit agencies (ECAs) support export and apply minimum premium rates (MPRs) to the principal amount only, while the insurance agreement covers also the interest amount. This area can be described as a grey zone, because ECAs can decide themselves what cover they provide for a limited price. This paper explains which parts of a lending rate should be covered under credit insurance and provides theoretical and empirical analysis of the maximum extent of interest cover. The extent of such cover is closely related to the return on ECAs' investments. An excessive amount of interest cover creates room for market failures such as moral hazard or adverse selection, which have a negative impact on the domestic economy. The right amount of interest cover, on the other hand, guarantees long-term sustainability and a level playing field among ECAs, as the OECD requires.

Portfolio selection with tail nonlinearly transformed risk measures—a comparison with mean-CVaR analysis

We compare portfolio selection under the tail nonlinearly transformed risk measure (TNT) with mean-CVaR analysis for normally distributed returns. TNT arises as a natural extension to CVaR that additionally distorts the portfolio returns' outcomes by means of a concave transformation function. We first address the portfolio setting where no risk-free asset exists. Here, the global minimum CVaR portfolio, also under fairly realistic asset returns, may not exist. TNT is able to resolve this shortcoming: its additional transformation of the portfolio outcomes ensures that the global minimum TNT portfolio and, accordingly, the ()-efficient frontiers, do always exist. Second, we analyze the setting where the risk-free asset is available. In this case, Tobin's theorem holds both for CVaR and TNT, under the condition that the respective investors are sufficiently risk averse. Under TNT, this condition is less restrictive, Tobin's theorem holds more often. We third address the choice of optimal portfolios under CVaR and TNT. Under CVaR, optimal portfolios exhibit plunging: either the investor invests entirely in the risky tangency portfolio or she invests entirely in the risk-free asset; diversification is never optimal. TNT, in contrast, yields more realistic portfolio structures. Below a certain minimum risk premium, we do not find any risky investment. Once this minimum risk premium is passed, the risky investment is continuous and strictly monotonously increasing in the risk premium. This pattern is in line with empirical evidence on the stock market participation puzzle and the equity premium puzzle.

Problems with Long-term Financial Sustainability of Export Credit Agencies

This paper focuses on national support for export and examines whether, following the OECD arrangement, long-term financial sustainability is assured without sustained fiscal help. Rules on permitted state support in this area are stated by the OECD Consensus, which is meant to guarantee a level playing field for all exporters, to encourage competition among exporters based on the quality and prices of goods, and at the same time, not distort the free market. The main objective is that every export credit agency (ECA) should be self-sustainable with no need for state subsidies. However, this may not be achieved. This research proves inadequacy of minimum premium rates (MPR) due to insured interest. This issue arises mainly from the application of MPRs to the principal value of the insured loan with no correspondence to the insured interest amount. As many ECAs are publicly owned, all systematic losses must be covered by state budgets, which is against OECD agreements and is not allowed.

Model of Rice Farm Insurance to Reduce Losses Due to Harvest Failure

The rice farm insurance is one of micro insurance, which is intended for paddy fields. Its use is to reduce or minimize the losses suffered by farmers due to crop failure. In this article various things are related to rice farming insurance and specifically highlight rice farming insurance in Indonesia from the actuarial side. There are several actuarial methods that can be used to determine the amount of rice farming insurance premiums. Calculation of premiums is based on expectations of losses and losses of extreme events. The premium calculation used is: pure premium method, and method of level of coverage. Based on the results of the discussion, it shows that the actuarial fair premium determined in the range of IDR 179,000 to IDR 268,000. Thus, the official premium of rice farming insurance is IDR 180,000, is the minimum premium for agricultural insurance programs in Indonesia.

Client Satisfaction in Health Service Management in Hospitals of Province One Eastern Nepal

In health care organization, the satisfaction of client is the major factor which is directly linked with the effective use and the utilization of health care service. Effective and efficient management is a means to achieve predetermined goals. Organization cannot be successful unless it satisfies the clients. This descriptive cross-sectional study includes 680 patients which were selected from 4 public and 6 private hospitals randomly chosen from province 1. A direct interview method was used to gather and collect the data from clients' and hospital authorities for the quantitative method. The client satisfaction level was tabulated on the basis of 5 points liker scale. The reliability and the validity of the satisfaction scale for quantitative research we rechecked and examined. Association of categorical variables was assessed by Chi-square test. 92% of clients reported the higher satisfaction in the different aspects of nursing services .Around 31% of patients were completely not satisfied on "information regarding precaution of radio hazard", 26.8% on "waiting time to get the report" and 28.4% on "time consumed for report". About 28% of the participants reported not to be satisfied in the hospitals of Province 1for the availability of specialist in the emergency. The present study finding shows that 41.8 % of clients had reported any type of grievance towards health care service of hospital in Province 1.The study suggested that government should have first priority to allot sufficient specialized doctor services at least in district hospital and there should be 24 hours emergency duty of doctors. Laboratory and radio-diagnosis service in the hospital should be always be in good condition and reporting of the investigation should always be accurate as well as timely to make patients' satisfied in the hospital services. The gap of satisfaction level between private and public hospital may be fulfilled by the national health insurance system and the government should prioritize and implement the health insurance program with minimum premium.

PEMODELAN DAN SIMULASI PROSES SURPLUS PADA BISNIS ASURANSI

Basic insurance business is public trust. Insurance companies must pay attention to the systems and procedures for the payment of claims problem which is not simple. One of the important thing is when determining premium, because if it is too high could lead the company out of competition with the competitor. In the other hand, it is too low could lead the company lack of cash to handle claim which bring a negative impact for the company. This research aimed to give illustration of surplus in insurance business in a year period through determination of premium income and stochastic modelling in number and amount of claims. This model could be used by insurance company to take decision when determining premium whether surplus or ruin. The research used Exponential and Gamma distribution to model time of arrival and amount of claim respectively. The result show that the minimum premium could be found to get minimum surplus and avoid ruin.

Are Farmers’ Behaviors Rational When They Pay Less for Social Endowment Insurance? Evidence from Chinese Rural Survey Data

ABSTRACTIn recent years, farmers have had high participation rate in the rural social endowment insurance in China, for which personal contribution and government subsidy are the main funding source. There have been increasingly more farmers participating into the program. However, their enthusiasm for high premium payment was rather low as most of them selected the minimum premium for insurance. In this article, the discounted utility theory from behavioral economics was adopted to analyze insurance selection behaviors of farmers; in addition, a discounted incremental utility model with a hyperbolic discounting function was also further constructed to describe their insurance decision-making processes. Based on the investigation of time preferences of farmers, their insurance participation behaviors of diverse natures were simulated. The corresponding results indicated that active insurance participation and low insurance premium payment were rational choices for most farmers; in comparison, for the elders with higher income, different choices can be made. Therefore, policy makers could formulate differentiated subsidy policies directing at farmers from different groups, so as to stimulate their enthusiasm for premium payment.

Optimal Retention for a Quota-Share Reinsurance

The Indonesian Financial Services Authority (OJK) has instructed all insurance providers in Indonesia to apply a mandatory tariff for property insurance. The tariff has to be uniformly applied and the rule of set the maximum and minimum premium rates for protection against losses. Furthermore, the OJK issued the new rule regarding self-retention and domestic reinsurance. Insurance companies are obliged to have and implement self-retention for each risk in accordance with the self-retention limits. Fluctuations of total premium income and claims may lead the insurance company cannot fulfil the obligation to the insured, thus the company needs to conduct reinsurance. Reinsurance helps protect insurers against unforeseen or extraordinary losses by allowing them to spread their risks. Because reinsurer chargers premium to the insurance company, a properly calculated optimal retention would be nearly as high as the insurer financial ability. This paper is aimed at determining optimal retentions indicated by the risk measure Value at Risk (VaR), Expected Shortfall (ES) and Minimum Variance (MV). Here we use the expectation premium principle which minimizes individual risks based on their quota share reinsurance. Regarding to the data in an insurance property, we use a bivariate lognormal distribution to obtain VaR, ES and MV, and a bivariate exponential distribution to obtain MV. The bivariate distributions are required to derive the conditional probability of the amount of claim occurs given the benefit has occurred.

Productivity, Energy Use Efficiency and Economics of Organic Scented Rice Cultivation in Sub-Humid Agroecosystem

The increasing demand for organic cereals especially indigenous scented rice varieties in the recent years has peaked farmers’ interest towards its organic production. However, the threat of crop loss under organic cultivation has been holding back large scale initiatives. Inhana Rational Farming (IRF) Technology has come up as a promising organic package of practice towards mitigating this drawback of organic production that too at an affordable economics. The present study was conducted to generate scientific information regarding organic scented rice cultivation (Oryza sativa var. ‘Gobindobhog’) utilizing this organic POP in terms of productivity, energy use efficiency and economics. The yield of scented rice cultivated using organic POP was found to be 18% higher than the conventionally grown ones. In terms of energy use efficiency as well, organic POP was calculated to be more efficient signifying the role of organic practice in sustainable agriculture. Net profitability of organic paddy increased up to 17% with a minimum premium price of 25%. This increased higher income opportunity from same unit of land was an added benefit apart from improved soil quality in general; under organic management.

Analysing assets’ performance inside a portfolio: From crossed beta to the net risk premium ratio

AbstractThis paper is focused on enlarging the performance inside a portfolio that provides the Treynor ratio by relating portfolio weights with performance indicators. Intuition suggests that the higher the weight of an asset, the higher should be its expected performance. These weights, and the information that we can obtain from their analysis, are not only relevant for investors but also for corporate managers. Nevertheless, the available performance indicators are not linked to portfolio weights. In order to fulfil this gap we answer three questions: which is the minimum risk premium that justifies holding an asset in long position? How can we analyse if the performance of an asset justifies the budget’s weight invested in it? And, how can we apply ex-post optimisation to performance analysis? Methodologically, we centre the analysis on the definition of crossed beta and the net risk premium ratio that stems from it. The latter fulfils the axioms of risk/reward performance measures. The three answers...

Analysis of tropical storm damage using buffered probability of exceedance

This paper explains the new concept of buffered probability of exceedance (bPOE). Through averaging of data in the tail, bPOE compactly presents probability as well as loss value of the tail and has the capability to revolutionize the concept of risk-averse engineering. bPOE is demonstrated using tropical storm damage along the Atlantic and Gulf of Mexico coasts of the USA from 1900 to 2013 (average yearly damage $14.776 billion). It can be shown, under general assumptions, that bPOE is more than double the probability of exceedance (POE). For instance, with a $50 billion threshold of damages per year, POE is 10.6 %, while the bPOE is 26.1 %. We also considered expected excess (EE) over some threshold (deductible), which is a minimum premium that insurer should charge per year. We demonstrate that EE equals the difference between the damage associated with POE and bPOE multiplied by bPOE. For instance, for a 25 % tail probability, the value at risk (quantile) determined using POE is $11.181 billion, while the conditional value at risk (average damage in excess of the quantile) determined by the bPOE is $51.753 billion. This $40.572 difference leads to EE of 0.25 * $40.572 = $10.143 billion over the threshold $11.181 billion. Furthermore, subdividing the data by landfall state, at the 50 % probability level, Florida, the state most often hit by tropical storms also has the highest value for EE at $8.111 billion; thus, quantifying the need for insurers to charge Floridians high insurance premiums.

Administrative Efficiency, Clearinghouse Exchanges, Rate Review, and Zero Profits to Limit Healthcare Insurance Premium Increases

Background: The United States spends 18% of gross domestic product, the largest proportion globally, on healthcare. American healthcare administration costs two to five times more than other high-income nations, which is transferred to the public as health insurance premium price difference. Improved healthcare access is an underlying tenet of the Affordable Care Act (ACA), however inflated health insurance premiums could reduce healthcare access. Methods: This review is based on Google, Google scholar, and PubMed literature searches performed in February 2016, to analyze rising health insurance premiums as an area for health system reform within the context of the current health system. Subsequent literature search in October 2016, confirmed the original analysis. Results and Conclusions: Except for those whose income is less than 176% of the federal poverty level selecting the minimum premium bronze plan, despite subsidies, post-ACA premiums are greater than previous out-of-pocket costs for the insured. Excessive healthcare insurance premium prices decrease healthcare access. Implementation of zero profit margins for health insurers, maximum 14% health insurer administrative cost, and universal health insurer eligibility for reinsurance, universal health insurance annual loss ratio requirements, Medicare and Medicaid prescription drug price control, and universal clearinghouse strategy health exchanges should reduce healthcare insurance premium prices. The net effect should be improved healthcare access for all Americans, not just Americans living at 175% or less of the federal poverty level. The unchanged 62% medical bankruptcy rate in 2007 and 2015 may reflect overall unimproved financial security and healthcare accessibility provided by the ACA.

THE DESIGN OF AN OPTIMAL RETROSPECTIVE RATING PLAN

AbstractA retrospective rating plan, whose insurance premium depends upon an insured's actual loss during the policy period, is a special insurance agreement widely used in liability insurance. In this paper, the design of an optimal retrospective rating plan is analyzed from the perspective of the insured who seeks to minimize its risk exposure in the sense of convex order. In order to reduce the moral hazard, we assume that both the insured and the insurer are obligated to pay more for a larger realization of the loss. Under the further assumptions that the minimum premium is zero, the maximum premium is proportional to the expected indemnity, and the basic premium is the only free parameter in the formula for retrospective premium given by Meyers (2004) and that the basic premium is determined in such a way that the expected retrospective premium equates to the expected indemnity with a positive safety loading, we formally establish the relationship that the insured will suffer more risk for a larger loss conversion factor or a higher maximum premium. These findings suggest that the insured prefers an insurance policy with the expected value premium principle, which is a special retrospective premium principle with zero loss conversion factor. In addition, we show that any admissible retrospective rating plan is dominated by a stop-loss insurance policy. Finally, the optimal retention of a stop-loss insurance is derived numerically under the criterion of minimizing the risk-adjusted value of the insured's liability where the liability valuation is carried out using the cost-of-capital approach based on the conditional value at risk.

The Design of an Optimal Retrospective Rating Plan

A retrospective rating plan, whose insurance premium depends upon an insured's actual loss during the policy period, is a special insurance agreement widely used in liability insurance. In this paper, the design of an optimal retrospective rating plan is analyzed from the perspective of the insured who seeks to minimize its risk exposure in the sense of convex order. In order to reduce the moral hazard, we assume that both the insured and the insurer are obligated to pay more for a larger realization of the loss. Under the further assumptions that the minimum premium is zero, the maximum premium is proportional to the expected indemnity, and the basic premium is the only free parameter in the formula for retrospective premium given by Meyers (2004) and that the basic premium is determined in such a way that the expected retrospective premium equates to the expected indemnity with a positive safety loading, we formally establish the relationship that the insured will suffer more risk for a larger loss conversion factor or a higher maximum premium. These findings suggest that the insured prefers an insurance policy with the expected value premium principle, which is a special retrospective premium principle with zero loss conversion factor. In addition, we show that any admissible retrospective rating plan is dominated by a stop-loss insurance policy. Finally, the optimal retention of a stop-loss insurance is derived numerically under the criterion of minimizing the risk-adjusted value of the insured's liability where the liability valuation is carried out using the cost-of-capital approach based on the conditional value at risk.

Dynamic hybrid products in life insurance: Assessing the policyholders’ viewpoint

Dynamic hybrid life insurance products are intended to meet new consumer needs regarding stability in terms of guarantees as well as sufficient upside potential. In contrast to traditional participating or classical unit-linked life insurance products, the guarantee offered to the policyholders is achieved by a periodical rebalancing process between three funds: the policy reserves (i.e. the premium reserve stock, thus causing interaction effects with traditional participating life insurance contracts), a guarantee fund, and an equity fund. In this paper, we consider an insurer offering both, dynamic hybrid and traditional participating life insurance contracts and focus on the policyholders’ perspective. The results show that higher guarantees do not necessarily imply a higher willingness-to-pay, but that in case of dynamic hybrid contracts, a minimum guarantee level should be offered in order to ensure that the willingness-to-pay exceeds the minimum premium the insurer has to charge when selling the contract. In addition, strong interaction effects can be found between the two products, which particularly impact the willingness-to-pay of the dynamic hybrids.

Dynamic Hybrid Products in Life Insurance: Assessing the Policyholderss Viewpoint

Dynamic hybrid life insurance products are intended to meet new consumer needs regarding stability in terms of guarantees as well as sufficient upside potential. In contrast to traditional participating or classical unit-linked life insurance products, the guarantee offered to the policyholders is achieved by a periodical rebalancing process between three funds: the policy reserves (i.e. the premium reserve stock, thus causing interaction effects with traditional participating life insurance contracts), a guarantee fund, and an equity fund. In this paper, we consider an insurer offering both, dynamic hybrid and traditional participating life insurance contracts and focus on the policyholders’ perspective. The results show that higher guarantees do not necessarily imply a higher willingness-to-pay, but that in case of dynamic hybrid contracts, a minimum guarantee level should be offered in order to ensure that the willingness-to-pay exceeds the minimum premium the insurer has to charge when selling the contract. In addition, strong interaction effects can be found between the two products, which particularly impact the willingness-to-pay of the dynamic hybrids.

Insuring catastrophes and the role of governments

Abstract. In this paper we model the cost of providing insurance coverage against natural and man-made hazards. We propose an insurance market model that explains (1) the use of reinsurance to help finance the cost of catastrophic events and (2) the implicit (or explicit) presence of government entities acting as (re)insurers of last resort. Using an economic model, we show how insurance programmes should be designed to cover the losses due to a possible catastrophic natural hazard. Our results show that the optimal structure of a reinsurance programme minimizes the cost of offering insurance protection. We also show how government intervention can reduce the cost of insurance against natural catastrophes and increase policyholders' welfare. Our paper therefore offers public policy implications as to the role and presence of government as an insurer of last resort and the minimum insurance premium necessary to cover the cost of catastrophic events.

Collusion in a One-Period Insurance Market with Adverse Selection

Abstract We show that collusive-seeming outcomes may occur in equilibrium in a one-period competitive insurance market characterized by adverse selection. We build on the Inderst and Wambach (2001) model and assume that insurance is compulsory and involves a minimum premium and minimum coverage; these are common features in many health systems. In this setup we show that there is a range of equilibria, from the zero profit one where low-risks implicitly subsidize high risks, to one where firms obtain profits with both types of consumers. Moreover, we show that rents only partially dissipate if we assume free entry. Along these equilibria, high risks always obtain full insurance, while the low risks' coverage decreases as the firms' profits increase.

A MODEL FOR ESTIMATING PREMIUMS TO REDUCE IRRIGATION ON FARMS

Abstract This paper aims to determine the minimum agri‐environmental premium per hectare that farmers should receive to reduce crop irrigation.To this end, the authors develop a mixed‐integer quadratic model using a new methodology based on traditional positive mathematical programming, which allows the inclusion in the model of crop variants that are not present in the baseline situation of the farms.What is shown is that the results obtained with this new methodology, using the cost average approach of calibration, are the same as those obtained with an empirical method, when there is no change of crop distribution after the changeover from irrigated to nonirrigated farms.The theoretical results are compared with those obtained using the calibration with exogenous elasticities and are illustrated numerically for a representative farm of an area around Spain's Tablas de Daimiel in which the use of groundwater for crop irrigation has led to the ongoing deterioration of wetlands that depend on the same source of water, endangering the region's environmental sustainability.