Non-life Insurance Research Articles

Does economic policy uncertainty affect insurance premiums? Fresh empirical evidence

Economic Policy Uncertainty (EPU) is the level of uncertainty or unpredictability arising from government policy on topics such as taxes, trade, monetary policy, and regulation. Exploring the relationship between EPU and insurance premiums can provide insights into broader economic trends and policy decisions. EPU is often driven by political and economic events, and understanding its impact on insurance premiums can provide valuable information about how policy decisions and other external factors can affect the insurance industry and the broader economy. To understand the impact of EPU, this research examines the nexus between EPU and insurance premiums across 22 countries from 1996 to 2020. By applying panel cointegration tests, and the PMG-ARDL regression, it is found a periodical (both short-term and long-term) influence of EPU on insurance premiums. Additionally, it is revealed that EPU has a longer-term consequence on insurance premiums than it does in the short run. Also, EPU has a greater role in life insurance than non-life insurance. The results are consistent when robustness techniques (FMOLS and DOLS) are applied. The findings of the article have major implications for the government, policymakers, insurance authorities, and other relevant stakeholders.

Sensegiving for organisational change in neglected workplaces: the case of Japanese call centres

Purpose This study aims to investigate the consequences of middle managers’ sensegiving for organisational change in neglected workplaces, where middle managers are given insufficient resources because of receiving low attention from top management. Design/methodology/approach The authors conducted a case study of three call centres in the Japanese non-life insurance industry. To collect data, the authors conducted interviews with ten stakeholders and made multiple field observations. Findings The authors identified the following mechanism: in neglected workplaces, middle managers initially focus on sensegiving to employees because they recognise the difficulty of eliciting support from top management. However, as a result, they see sensegiving to employees as top priority and do not try to elicit the support of top management, which is necessary for further organisational change. As a result, organisational change stops at a certain level. Research limitations/implications The authors identified the following mechanism: in neglected workplaces, middle managers initially focus on sensegiving to employees because they recognise the difficulty of eliciting support from top management. However, as a result, they see sensegiving to employees as their top priority and do not try to elicit the support of top management, which is necessary for further organisational change. As a result, organisational change stops at a certain level. Originality/value First, this study contributes to the body of research on the effects of sensegiving on organisational change. It shows the new problems hidden behind organisational change, which existing research merely regards as independent successes. Second, this study identifies middle managers’ behaviour during organisational change in neglected workplaces. Instead of focusing on the factors necessary for successful organisational change, as in existing studies, this study extends the knowledge of the role of middle managers in organisational change by focusing on their behaviours when success factors are not aligned.

Bridging the gap between pricing and reserving with an occurrence and development model for non-life insurance claims

AbstractDue to the presence of reporting and settlement delay, claim data sets collected by non-life insurance companies are typically incomplete, facing right censored claim count and claim severity observations. Current practice in non-life insurance pricing tackles these right censored data via a two-step procedure. First, best estimates are computed for the number of claims that occurred in past exposure periods and the ultimate claim severities, using the incomplete, historical claim data. Second, pricing actuaries build predictive models to estimate technical, pure premiums for new contracts by treating these best estimates as actual observed outcomes, hereby neglecting their inherent uncertainty. We propose an alternative approach that brings valuable insights for both non-life pricing and reserving. As such, we effectively bridge these two key actuarial tasks that have traditionally been discussed in silos. Hereto, we develop a granular occurrence and development model for non-life claims that tackles reserving and at the same time resolves the inconsistency in traditional pricing techniques between actual observations and imputed best estimates. We illustrate our proposed model on an insurance as well as a reinsurance portfolio. The advantages of our proposed strategy are most compelling in the reinsurance illustration where large uncertainties in the best estimates originate from long reporting and settlement delays, low claim frequencies and heavy (even extreme) claim sizes.

The use of Machine Learning in non-life insurance: Literature review

The use of Machine Learning in non-life insurance: Literature review

Macroeconomic and firm-specific determinants of financial performance: Evidence from non-life insurance companies in Africa

This study aimed to examine the macroeconomic and firm-specific determinants of financial performance using 121 listed non-life insurance companies from 48 African countries for the period 2008–2019. Panel data of 1452 observations were examined using both ordinary least squares and two-step System Generalised Method of Moments estimators. The findings of this study show that lagged return on assets, equity capital, operational efficiency and leverage, investment capability and gross domestic product are the statistically significant determinants of financial performance in African non-life insurance companies even though equity capital, operational efficiency and leverage are inversely significant. It is concluded that insurance industries, policymakers, government and investors should take into consideration these significant factors in taking decision and improving their performance. Also, it is recommended that the capital structures of the sector should be restructured to maintain a favourable balance in the equity and debt of the companies. Also, mechanisms such as automated systems that can reduce operational cost should be adopted such that financial performance can be enhanced.

Macroeconomic Determinants of Insurance Companies’ Financial Stability: The Case of the Czech Republic

Abstract The study assesses the determinants of the financial stability of the Czech commercial insurance companies within the period 2004-2019. The eight macroeconomic determinants of the financial stability of insurance are analysed for both insurers, i.e., with predominated life and non-life insurance. The generalized method of moments is used for empirical analysis. The results show four macroeconomic variables were statistically significant determinants of financial stability in the case of non-life insurers and three determinants influenced the financial stability of life insurers. The study concludes that the determinants of the financial stability of non-life insurers were different that in the case of life insurers. Moreover, the impact of several determinants is also different in case life and non-life insurers in the Czech Republic.

Risk-sharing function in internal capital markets: Evidence from intragroup reinsurance activities

This study explicitly investigates the risk-sharing function of internal capital markets by analyzing intragroup reinsurance (a substitute for capital) activities in the United States' non-life insurance sector. We find supporting evidence that intragroup reinsurance participants are generally associated with smoother income flows, and such an income smoothing effect exists for both ceding and assuming firms. Further to prior studies, we find that internal reinsurance ceded exerts both direct and indirect effects on premiums growth in the aftermath of the financial crisis in 2007 and 2008. In addition to direct capacity support, the reduction in income volatility is another channel through which intragroup reinsurance enhances ceding firms' premiums growth. In the presence of market turmoil, the risk-sharing function can lower member firms' insolvency risk and thus enable them to pursue business growth.

Private Insurance, Public Welfare, and Financial Markets: Alpine and Maritime Countries in Comparative-Historical Perspective

Contemporary capitalist societies use different institutions to manage economic risks. While different public welfare state and financial institutions (banks, capital markets) have been studied across coordinated and liberal market economies, the different worlds of private insurance institutions have been understudied. Building on new insurance data sets (1880–2017), we find that countries with a Maritime (USA, GBR, CAN) in contrast to the more backward Alpine (AUT, DEU, CHE) insurance tradition developed bigger life and nonlife insurance earlier, with less state-associated and reinsurance enterprises, but riskier investments steered toward financial markets. We argue that the larger and more “Maritime” the insurance sector, the more it made welfare states liberal and securities markets large. Insurance is thus a hidden factor for countries’ varieties of capitalism and worlds of welfare. The recent convergence on the Maritime model, however, implies that the riskier and risk-individualizing type of private insurance has added to privatization and securitization trends everywhere.

Customer-Centric Approach for Financial and Economic Surveys of Private Security Companies

The subjects of the study are private security companies. Its object is the leading role of the customer-centric approach for financial and economic justification of the successful functioning and development of private security companies. The research hypothesis is that an objective assessment of the financial and economic aspects and the motivation of individuals and legal entities to purchase protection and security services under the conditions of post-epidemic recovery of the economy can be carried out by means of customer satisfaction and service pricing justification surveys. The aim of this article is to present the results of a customer satisfaction survey and the assessment of the financial and economic aspects as well as the motivation of individuals and legal entities to purchase protection and security services under the conditions of post-epidemic recovery of the economy. Structurally, the article includes three main sections: the first section focuses on the circulation of cash flows of private security companies; the second section presents selected elements of the conducted survey; and the third present an analysis of the survey among private security companies where the protection and security services compete and at the same time complement property insurance services. The survey results (based on a multi-crtieria Likert scale) confirm the validity of the "value for money" concept as an important factor for the pricing of private protection and security services. The survey questionnaire successfully compares the services of non-life insurance companies and the services of protection and security companies. The prevailing opinion is in favour of using the services of specialized companies over taking out insurance policies, with 61% of respondents expressing the opinion that hiring a specialized protection and security company is a more effective way to ensure property protection to taking out equivalent insurance with a general insurance company.

The threshold effect of climate risk and the non-linear role of climate policy uncertainty on insurance demand: Evidence from OECD countries

This paper investigates whether climate risk and climate policy uncertainty (CPU) have traditional linear or complicated non-linear impacts on insurance demand. We find evidence that both phenomena exist. Linear model shows positive effect of climate risk and negative effect of CPU on insurance demand. However, climate risk and CPU are interdependent, non-linear analysis demonstrates that CPU acts as a threshold. In particular, climate risk has a U-shaped relationship with life insurance demand and an inverse S-shaped relationship with non-life insurance demand, which provides insurance companies with a better understanding of how insurance demand fluctuates under climate risk.

Determinants of Financial Performance – A Comparative Analysis of Public Sector Non-Life Insurers in India

A well-developed and functioning insurance sector is a pre-requisite for an inclusive economy and growth of any country. The insurance sector has been growing steadily and gradually in India. Insurance is an essential financial service because it provides financial security to individuals and business persons. The efficiency of the insurance companies is measured by the techniques such as financial performance, technical, purely technical and scale efficiencies. This research work aims at analyzing the financial performance of public sector nonlife Indian insurance companies and the determinants of such performance. Commission, claims incurred, investment income, the net premium earned, management soundness and operating expenses are considered determinants of the financial performance of non-life insurance companies. Data are collected from the financial year 2009-10 to the financial year 2021-22 to determine financial performance. Data were checked for their normality and stationarity using EViews statistical software. Research results convey that New India Insurance Company Limited performs better in financial performance followed by United India Insurance Company Limited. Common determinants of net profit after tax of public sector non-life insurance companies are claims incurred and net premium earned.

Contingent factors of the coinsurance function of internal capital markets: Evidence from the US nonlife insurance industry

By analyzing intragroup reinsurance activities in the US nonlife insurance sector from 1999 to 2016, we provide evidence that the coinsurance function of internal capital markets is contingent on internal capital providers’ financial resources and the relative sizes of capital receivers within the group. We demonstrate that insurance groups commonly use intragroup reinsurance (a substitute for capital) to support insurers that sustain underwriting losses. Larger insurers are more likely to obtain internal reinsurance if their affiliated insurers hold more financial resources. Our findings show that the financial capabilities of group members providing support affect the feasibility of the coinsurance function through the activities of internal capital markets. Group members with greater influence are more likely to benefit from the coinsurance function.

NEW INDIA ASSURANCE CO. LTD: GROWTH STORY AND ITS COMPETITIVE STATUS IN NON-LIFE GENERAL INSURANCE SECTOR IN THE GLOBALISED WORLD

New India Assurance a Market leader in the Indian general insurance sector, with 100 years of operations. There were a total of 4 non-life insurance companies in India, but only one of them, New India Assurance, turned a profit and rose to the top of the non-life market. The main goal of the study is to understand how New India Assurance Company managed to outperform other government insurance companies in the face of setbacks. In 2000, the Indian government liberalised the insurance industry, increasing competition by allowing many foreign and private insurance companies to operate there. The research focuses on the factors that have kept New India Assurance Company at the top of the market even after the liberalisation and privatization of the insurance sector. For the purpose of the research, secondary data were gathered from a number of annual reports and the websites of the New India Assurance Company.

Minimum capital requirement and portfolio allocation for non-life insurance: a semiparametric model with Conditional Value-at-Risk (CVaR) constraint

We present an optimization problem to determine the minimum capital requirement for a non-life insurance company. The optimization problem imposes a non-positive Conditional Value-at-Risk (CVaR) of the insurer’s net loss and a portfolio performance constraint. When expressing the optimization problem in a semiparametric form, we demonstrate its convexity for any integrable random variable representing the insurer’s liability. Furthermore, we prove that the function defining the CVaR constraint in the semiparametric formulation is continuously differentiable when the insurer’s liability has a continuous distribution. We use the Kelley-Cheney-Goldstein algorithm to solve the optimization problem in the semiparametric form and show its convergence. An empirical analysis is carried out by assuming three different liability distributions: a lognormal distribution, a gamma distribution, and a mixture of Erlang distributions with a common scale parameter. The numerical experiments show that the choice of the liability distribution plays a crucial role since marked differences emerge when comparing the mixture distribution with the other two distributions. In particular, the mixture distribution describes better the right tail of the empirical distribution of liabilities with respect to the other two distributions and implies higher capital requirements and different assets in the optimal portfolios.

Multiple-prior valuation of cash flows subject to capital requirements

We study market-consistent valuation of liability cash flows motivated by current regulatory frameworks for the insurance industry. The value assigned to an insurance liability is the consequence of (1) considering a hypothetical transfer of an insurance company's liabilities, and financial assets intended to hedge these liabilities, to an empty corporate entity, and (2) considering the circumstances under which a capital provider would want to achieve and maintain ownership of this corporate entity given limited liability for the owner and that capital requirements have to be met at any time for continued ownership.We focus on the consequences of the capital provider assessing the value of continued ownership in terms of a least favorable expectation of future dividends, meaning that we consider expectations with respect to probability measures in a set of equivalent martingale measures. We show that natural conditions on the set of probability measures imply that the value of a liability cash flow is given in terms of a solution to a backward recursion. Through a life and a non-life insurance example we demonstrate how to make the valuation approach operational.

Why do consumers resist digital innovations? An innovation resistance theory perspective

PurposeDespite the efforts of governments and firms, consumer resistance toward digital innovations in the retail finance space continues to manifest rather visibly. Yet, the causes of consumer resistance toward innovations such as online procurement of financial products continue to remain under-explored. The present study attempts to address this gap by examining barriers that may constitute Indian consumers' resistance to buying financial products marketed digitally, using insurance as an exemplar. Precisely, the study measures five classic innovation resistance theory (IRT) barriers constituting consumers' resistance toward procuring digitally marketed insurance and examines the influence of consumers' demographic characteristics, measured through age and gender.Design/methodology/approachThe conceptual model, resting on the theoretical proposition of IRT, was tested using data collected from 420 smartphone users. Given that, the data did not satisfy the multivariate assumptions of normality, homoscedasticity and linearity, artificial neural network approach was used for analysis. The analysis served as the basis for determining the relative importance of the five barriers in influencing consumer resistance.FindingsThe results indicated that the image barrier was the most influential barrier impacting consumer resistance, followed by usage, tradition, risk and value barriers. Moreover, as revealed by the values of correlations, the direction of influence was positive. Notably, the relationship of all barriers except tradition with consumer resistance was found to be nonlinear.Originality/valueThe study makes a novel contribution in two ways – one by extending IRT to a new area, i.e., resistance to buying financial products online, thereby further enhancing its applicability, and the other by exploring consumer resistance to e-procurement of life and nonlife insurance, which to the best of the authors' knowledge, has not been examined so far despite the established exigency.

Nexus between financial inclusion and women empowerment: evidence from developing countries

Purpose This paper aims to conduct an empirical investigation of how financial inclusion impacts women empowerment. Then, it examines the overall effect of various dimensions of financial inclusion on women empowerment in developing countries using the panel data for the time period of 2004–2019. Design/methodology/approach To overcome the problem of endogeneity, the study has used a fixed-effect model, two-stage least square GMM estimation techniques. Secondary data was collected from various websites such as WDI, UNICEF and UNESCO. Findings The results show that generally, the influence of financial inclusion on women empowerment is positive, confirming previous empirical literature results. The study found evidence that if there is more financial inclusion in the country, it will benefit women by enabling them to see their qualities and skills, which make them strong and dominant. Proper development and enhancement of those skills are only possible if proper education, awareness and space are given to express oneself. According to the results, financial development, gender parity index and women's employment positively affects women empowerment, while gender discrimination has a negative impact on women empowerment. The study highlights that to encourage women empowerment in developing countries. Governments and policymakers have to carefully check and reconsider that what are the most optimal financial inclusion programs that will help to improve the women empowerment in the country. Practical implications The study highlights that to encourage women empowerment in developing countries, governments and policymakers have to carefully check and reconsider what are the most optimal financial inclusion programs that will help to improve women empowerment in the country. Originality/value The literature does not clearly show the impact of financial inclusion dimensions on women empowerment in developing countries. Therefore, there is a need to use all the dimensions of financial inclusion to check the overall impact on women empowerment in developing countries. For this purpose, the financial inclusion index is developed. A new dimension of non-life insurance is introduced, which has not been used previously by any researcher to check financial inclusion impact.

보험산업의 분기손익 조정에 관한 연구

This paper analyzed how the unique accounting method and accounting environment of insurer different from non-financial companies affect earnings pattern of quarterly earnings by focusing on the settling-up effect using data from the past 34 quarters of domestic insurers. And the analysis was conducted by testing whether 4th quarter's degree of response between sales and expenses differs from other quarters. As a result of the analysis, it was found that the settling-up effect occurred in the insurance industry and these effect tended to be differentiated in the 4th quarter compared to interim quarters, and this differentiation was intensifying in the non-life insurance industry. These results are interpreted to be due to the difference between in interim and annual statements and the use of cash and accrual base accounting. In addition, this is interpreted to be more pronounced in the non-life insurance industry, where the complexity of payment process and the probability of earnings managements related to the loss reserves are high. The results are significant in that it compares and analyzed the characteristics of insurance accounting information in the transitional stage of converting to full accrual basis with the adoption of IFRS 17 and predicts changes in insurance accounting information.

Insurance and economic growth nexus: New Evidence from OECD countries

This study tackles the debate on the relationship between insurance development and economic growth by providing new evidence on the insurance sector. Most of the existing empirical studies focus primarily on the banking sector. This article applies linear dynamic panel-data approaches to examine the nexus between insurance (life insurance, non-life insurance, and the total insurance) and economic growth in 16 OECD countries from 2009 to 2020. We show that insurance development is associated with economic growth. The relationship between life and non-life insurance premiums and economic growth is non-linear. Based on the analysis of the data, an inverted U-shaped relationship is observed between insurance premiums and economic growth, thereby supporting the hypothesis reported in the literature on the non-linear relationship between financial development and economic growth. This implies that more finance may only be better up to a point, after which it tends to harm growth. Thus, our results confirm that the relationship between the insurance sector and economic growth appears to behave like the association between the financial industry and GDP. These findings offer several useful empirical implications for insurance companies and certain perspectives that would help policymakers, governments in OECD and other regions identify important aspects that can be considered while formulating financial regulations related to insurance activities.

Local bias adjustment, duration-weighted probabilities, and automatic construction of tariff cells

We study non-life insurance pricing and present a general procedure for constructing a distribution-free locally unbiased predictor of the risk premium based on any initially suggested predictor. The resulting predictor is piecewise constant, corresponding to a partition of the covariate space, and by construction auto-calibrated. Two key issues are the appropriate partitioning of the covariate space and the handling of randomly varying durations, acknowledging possible early termination of contracts. A basic idea in the present paper is to partition the predictions from the initial predictor, which as a by-product defines a partition of the covariate space. Two different approaches to create partitions are discussed in detail using (i) duration-weighted equal-probability binning, and (ii) binning by duration-weighted regression trees. Given a partitioning procedure, the size of the partition to be used is obtained using cross-validation. In this way we obtain an automatic data-driven tariffication procedure, where the number of tariff cells corresponds to the size of the partition. We illustrate the procedure based on both simulated and real insurance data, using both simple GLMs and GBMs as initial predictors. The resulting tariffs are shown to have a rather small number of tariff cells while maintaining or improving the predictive performance compared to the initial predictors.