Premium Rate Research Articles

Mapping agents: A spatial economic analysis of agent location in the Federal Crop Insurance Program

AbstractCrop insurance is delivered to farmers and ranchers through a partnership among the Federal Crop Insurance Corporation (FCIC), part of the United States Department of Agriculture, and the crop insurance industry. The FCIC offers financial incentives, through reinsurance and subsidies, to private insurance companies for insurance contracts sold in accordance with the Standard Reinsurance Agreement (SRA). Crop insurance agents play an important role in the delivery of the federal crop insurance program, acting as intermediaries between farmers and crop insurance companies. Little is understood about the supply of crop insurance agents and the role of government policy in the provision of agent services, particularly after the 2010 SRA. We model the equilibrium supply of crop insurance agents to derive testable hypotheses about the factors that influence agent concentration across space. We evaluate our model using spatial econometric techniques and a novel dataset of crop insurance agent locations by county. Generally, forces that raise agent compensation, including the degree of competition among insurance companies, are shown to increase the local supply of agents. Results vary by government‐defined reinsurance regions. Notably, historical average premium rates, which both reflect actuarial risk and influence farmer insurance demand, are negatively related to agent competition in the low‐risk Group 1 states, which contributes over 40% of insured liabilities. These factors produce spatial spillovers, suggesting the presence of agglomeration effects in the market for agent services. Proposed changes to the SRA should consider impacts on the regional distribution and local supply of agents.

Multiple Behavioral Conditions of the Forward Exchange Rates and Stock Market Return in the South Asian Stock Markets During COVID-19: A Novel MT-QARDL Approach

This study examines the short- and long-term effects of multiple quantiles of forward exchange rate premiums (FERPs) and COVID-19 cases on the quantiles of stock market returns (SMRs). We extend the Quantile Autoregressive Distributive Lag (QARDL) model, and the Multiple Threshold Non-linear Autoregressive Distributive Lag (NARDL) model propose a new Multiple Threshold Quantile Autoregressive Distributive Lag (MT-QARDL) approach. Unlike MT-NARDL, QARDL, and NARDL, the MT-QARDL model, which integrates the MT-NARDL model and the quantile regression methodology, captures both short- and long-term locational and sign-based asymmetries. For instance, at lower quantiles for Indian and Sri Lankan SMRs, bearish FERP exerts a positive influence, while bullish FERP has a negative effect during COVID-19. Conversely, bullish FERP negatively affects lower quantiles of SMRs of Bangladesh, India, and Sri Lanka, whereas bearish FERP either yields an opposite effect or remain statistically insignificant during COVID-19. The findings underscore long-term sign-based asymmetries due to the differential bearish and bullish FERP impact during COVID-19. However, in the long term, location-based asymmetries also existed as bullish FERP negative influence the SMRs of India, Bangladesh and Sri Lanka at higher quantiles but SMRs at lower quantiles insignificantly respond to the bullish FERP fluctuations during COVID-19.

Continuous-time optimal reporting with full insurance under the mean-variance criterion

We study a continuous-time, loss-reporting problem for an insured with full insurance under the mean-variance (MV) criterion. When a loss occurs, the insured faces two options: she can report it to the insurer for full reimbursement but will pay a higher premium rate; or she can hide it from the insurer by paying it herself and enjoy a lower premium rate. The insured follows a barrier strategy for loss reporting and seeks an optimal barrier to maximize her MV preferences over a random horizon. We show that this problem yields an optimal barrier that is not necessarily decreasing with respect to the insured's risk aversion, as intuition suggests it should. To address this non-monotonicity, we propose two solutions: in the first solution, we restrict the feasible strategies to a bounded interval; in the second, we modify the MV criterion by replacing the variance of the insured's wealth with the variance of the insured's retained losses. We obtain the optimal barrier strategy in semiclosed form—as a unique positive zero of a nonlinear function—for both modified models, and we show that it is a decreasing function of the insured's risk aversion, as expected.

Drought disaster risk assessment and yield insurance pricing of maize: a case study of Liaoning Province, China

Starting from the ‘four-factors’ theory of natural disaster risk formation, the study first selects indices that represent hazard, vulnerability, exposure, and emergency response and recovery capability to construct the drought risk assessment index system. Then the natural disaster risk index method is employed to evaluate the risk of maize drought disasters in Liaoning. Finally, the pure premium rate for maize yield insurance is determined based on the risk assessment results and the Copula function. The results show that: (1) The hazard, vulnerability, and exposure index in northwestern Liaoning are high, while emergency response and recovery capability is relatively low. Therefore, northwestern Liaoning is identified as a high-risk area for drought risk. (2) There exists a negative correlation between the drought risk index and maize yield in most areas of Liaoning; that is, higher drought risk is associated with lower maize yield. (3) Under the same coverage level, pure rates are higher in the northwestern and eastern Liaoning and relatively lower in the southwestern and southeastern Liaoning. Under different coverage levels, higher coverage corresponds to increased pure rates. The results can offer valuable guidance and benchmarks for relevant departments in Liaoning Province to assess the impact of drought risk on agriculture.

Modeling of Car Insurance Premiums Using the Bayes Method with Poisson and Exponential Distributions

Car insurance is included in the general insurance category. Determination of general insurance premiums can be done through various approaches, one of which is the Bayes method used in this study. The Poisson distribution is chosen to model the frequency of claims, while the Exponential distribution is used to model the amount of claims. Insurance premiums are calculated by multiplying the expected frequency of claims by the expected amount of claims. Based on the results of the analysis of car insurance data using the Bayes method, it was found that the highest premium rates were for Mercedes brand vehicles, while the lowest rates were for Saab brand vehicles. The results of this calculation can be used by insurance companies as a reference in managing car insurance reserve funds.

Analisis Peran Undewriter Dalam Menyeleksi Risiko pada Produk Asuransi Kesehatan:

This study aims at the role of the underwriter in selecting the risk of health insurance products, knowing the obstacles encountered by the underwriter in selecting the risk and the solutions applied to overcome these obstacles, and knowing the underwriting process of group health insurance at AJB Bumiputera Medan. The type of research used is descriptive research, with a qualitative approach. The conclusions of this study briefly are: (1) Underwriters have an important role in insurance companies because underwriters determine whether the insurance coverage can be accommodated by the company or not. (2) Obstacles encountered by underwriters in selecting risks are the availability of incomplete participant data, previous experience data of the insured and prospective insured not providing the desired budget and benefits, while the solution is to contact the agent concerned to obtain additional information needed by the underwriter, apply analysis to groups of prospective insurance participants as new participants, and provide standard premium rates and benefits. (3) The underwriting process begins when marketing applies for SPPA until the issuance of the policy. Keywords: Underwriting, Underwriter, Group Health Insurance

Utilizing large‐scale insurance data sets to calibrate sub‐county level crop yields

AbstractCrop yields are crucial for research on agricultural risk and productivity but are typically only available at highly aggregated levels. Yield data at more granular levels of observation have the potential to enhance econometric identification and improve statistical power but are typically inaccessible. Crop insurance contracts offered via the US Federal Crop Insurance Program (FCIP) are priced, in part, based on past yields of the farm meaning year‐to‐year variation in premium rates has the potential to provide insight into how yields vary over time. This paper introduces methods to use observed FCIP rating parameters to calibrate yields for insurance transactions lacking such data. These methods are validated with 148,243 farm‐level observations from Kansas for which yields are known. The calibrated yields are applied empirically to examine the impact of asymmetric information in the FCIP via choice of insurance unit structure and the extent to which legislative changes mitigated this effect.

How Do “One-Time Bidding, Average Price Win” Land Auction Rules Affect Land Prices: A Quasinatural Experiment in Suzhou, China

The land price reflects the supply and demand relationship in the land market and plays an important role in regulating land use. Improving land auction rules is of great significance for avoiding abnormal fluctuations in the land market and promoting the sustainable use of land resources. To regulate the abnormal fluctuations in the state-owned land use rights’ auction prices, Chinese local governments have implemented a “sealed one-time bidding, average price wins” rule. However, limited theoretical and empirical research that assesses its policy impact exists. This study examines the policy motivations behind this rule, constructing three game models; namely, static complete information, static incomplete information, and multiperiod repeated games. By deducing bidding strategies and equilibrium results, hypotheses are formulated. A baseline difference-in-differences (DID) and a dynamic policy effect model are designed, and the Python crawler is used to obtain 1182 microland auction samples in Suzhou. This study evaluates the impact of the one-time bidding rule on the starting prices, transaction prices, and premium rates. The empirical results underwent multiple robustness tests, eliminating potential endogeneity issues and biases. The results show that while the policy is effective in restraining the premium rate, indicating the bidding intensity in single-land auctions, it proves challenging to curb the long-term rise in land prices through continuous bidding auctions. Moreover, the policy may stimulate local governments to increase auction starting prices.

Computational Methods of Ruin Probability: Actuarial Comparison of De-Vylder and Tijim’s Models

The underwriting operation of insurance firms is to assume the risk of the insured in return of premium received. In order to shield itself against extreme losses and avoid the risk of insolvency, it becomes necessary to examine how the portfolio is expected to perform over a long-time horizon. The surplus process is connected with the excess of the premium received over claims outgo of the insurer’s portfolio to enable it predict the level at which the insurer could survive. When the surplus approaches a defined lower limit irrespective of the initial reserve, then the insurer is ruined. The probability of ruin apparently defines the volatility embedded in underwriting process as a useful tool of risk measurement in long range planning of premium rate. This paper is anchored on the following objectives: solve the adjustment co-efficient using the moment generating function, compute the De-Vylder’s ruin, compute the Tijim’s ruin approximation and then compare the two. Although it was verified that as the initial capital increases, the probability of ruin decreases under the two models, computational evidence from our results in tables 2 and 3 shows that the Tijim’s approximation to ruin probability is higher than the De-Vylder’s approximation at the same level of initial capital and safety loading. The implication is that the De-Vylder’s approximation to ruin probabilities is an improvement over Tijim’s ruin model and hence De-Vylder’s approximation is recommended for the insurer’s ruin assessment

ЗАДАЧА ОПТИМАЛЬНОГО СТОХАСТИЧЕСКОГО УПРАВЛЕНИЯ И ОЦЕНКИ СТОИМОСТИ КОРПОРАТИВНЫХ ОБЛИГАЦИЙ, ЗАВИСЯЩИХ ОТ ВРЕМЕНИ И СЛУЧАЙНЫХ СОСТОЯНИЙ ПАРАМЕТРОВ

In the optimal stochastic control problem, one estimates, using the utility indifference method, the bond price and the premium of a default swap contract (Credit default swap) when the model parameters (market interest rate, drift coef-ficient, and volatility of risky underlying assets) are random functions of time and state. Namely, the interest rate of the risk-free asset depends on time, and the prices of risky assets are described by linear homogeneous stochastic dif-ferential equations (SDEs) with multiplicative noise. To do this, the authors consider a portfolio with a risk-free asset and a risky asset with no default risk. For each such portfolio, the authors determine the amount of risky assets that maximizes the expected utility of its final wealth. This quantity allows one to solve the parabolic partial differential equations arising from the Hamilton-Jacobi-Bellman (HJB) equation by transforming them into ordinary differential equations using the method of variable separation to obtain the instantaneous value function of each portfolio. The authors derive the bond price and the default swap-contract premium (CDS) rate, which are the amounts that provide the same level of the expected utility by investing all of one’s wealth in a portfolio that does not contain these credit instruments, or by investing these amounts in credit instruments and the remainder of one’s wealth in the portfolio.

The Credit Spread: Risk-Free Rate in the Model

This paper proposes a parsimonious credit spread estimation model for valuation of corporate bonds in data-scarce markets. We emphasize the importance of incorporating the risk-free rate directly into credit spread determination. Our model aligns with established literature and demonstrates the ability to capture the observed influence of risk-free rates on credit spreads across economies. We posit that models omitting the risk-free rate component may underestimate credit spreads, particularly impactful in emerging markets with elevated default probabilities and high risk-free rates. Finally, we discuss practical applications of the model, including exchange rate premium calculations, policy analysis, and negative yield spread analysis.

Determination of Insurance Premium Rates with Aggregation Claims at BPJS with Exponential and Gamma Distributions

Badan Penyelenggara Jaminan Sosial (BPJS) is a legal entity that has been provided by the government for the community with the aim of providing protection for all workers in Indonesia from certain socio-economic risks. National development, marked by planned and continuous strides, embodies a commitment to engage all societal, national, and state levels in fostering progress. Encompassing political, economic, socio-cultural, and defense and security realms, the development is meticulously designed to be comprehensive, targeted, integrated, gradual, and sustainable. The overarching objective is to catalyze an augmentation of national capabilities, align the standard of living for the Indonesian people with developed nations, and elevate overall welfare. To establish premium rates, a method involves multiplying the conditional expected value of claim frequency by the size of the claim, considering observed risk characteristics. A claim, in this context, constitutes a formal request to the insurance company, seeking payment in accordance with the terms of the agreement. The primary objective of this study is to establish the insurance premium rates applicable to policyholders (the insured) through the estimation of parameters in the distribution governing aggregate claims. This involves the distribution of both the number of claims and the size of the claims, and the estimation is performed using the moment method. Premium computations are executed based on two key principles: the pure premium principle and the expected value principle. This research produces the conclusion that the Poisson-Gamma aggregate claims distribution has a premium amount of 3.61 times greater than Poisson-Exponential due to the application of the anticipated value principle, namely IDR 4,403,542.94 per month and IDR 1,219,878.45 per month, respectively.

Pricing models for small and micro loan portfolio insurance

From the perspective of the insurance deductible, this article constructs pricing models suitable for small and micro loan portfolio insurance under realistic conditions, and summarizes relevant pricing laws through examples. It is found that the option attribute of loan portfolio insurance contracts endowed by absolute or relative deductible clause can be used to price small and micro loan portfolio insurance. Meanwhile, owing to the offset effect of the loan portfolio on the credit risk of different single loans, the premium rate of loan portfolio insurance should be controlled between that of corresponding single loan insurance. Moreover, properly adjusting the deductible ratio, insurance period, and composition of the insured loan portfolio can create more space for reducing the insurance price of the loan portfolio or expanding insurance profits. Our study improves the pricing model system of small and micro loan insurance, which has important theoretical value and practical significance for the scientific pricing of loan portfolio insurance.

Financial Sustainability of Social Insurance: The Case of Korean Workers’ Compensation Insurance and Possibility of Triple Moral Hazard

Abstract This study examines the economic stability of Korean Workers’ Compensation Insurance (WCI), highlighting the system’s vulnerability to triple moral hazard. Korean WCI features more generous worker compensation, lower employer premiums, and more active government involvement in accident prevention in addition to a higher industrial accident rate, compared to the system in Germany and Japan. The negotiation process of the WCI among workers, employers, and insurance managers often prioritizes short-term benefits, undermining long-term financial health. Workers seek greater compensation, employers push for lower premiums, and insurance managers may prioritize collective interests, exacerbating the system’s economic instability. Over recent years, applications for occupational disease recognition have surged, and premium rates have decreased, indicating increasing strain. To mitigate these issues, the study proposes enhancing transparency and rationality, involving non-political experts in decision-making, and clearly defining the government’s role in managing WCI. These measures aim to balance stakeholder interests and ensure the WCI system’s sustainability for future generations.

BABY POTATOES-A NOVEL WAY OF POTATO CONSUMPTION

In potato production, optimum tuber size is important to maximize crop value and hence growers target different tuber sizes at harvest to meet the localized market demand as produce size affects the pricing. Normally medium sized and large sized tubers get premium rates as compared to small tubers in the market, however, small sized tubers of specific varieties are also liked for some specific purposes and therefore get premium rates. In the changing food habit scenario, tubers weighing 20-40 grams specially packed and marketed as “baby potatoes” attract consumers. Baby potatoes are valued by consumers for freshness, taste, size and shape. Baby potatoes are consumed worldwide in a variety of dishes through various culinary methods.

Determinants of Farmers' Awareness and Perspectives on Pradhan Mantri Fasal Bima Yojana in Southern Tamil Nadu, India

Farmers in India face numerous risks that significantly impact their crop production, highlighting the need for effective crop insurance. Recognizing the limitations of the existing crop insurance system, the Government of India initiated the Pradhan Mantri Fasal Bima Yojana (PMFBY) during the Kharif 2016 season. This scheme offers competitive premiums and favourable terms, yet coverage of farmers remains low. This study investigates the factors influencing the farmers’ awareness and perceptions of the PMFBY scheme. The survey was conducted to collect primary data from 350 cotton farmers in Virudhunagar district, Tamil Nadu. Findings reveal that while farmers have partial awareness of various aspects of crop insurance, they are generally informed about premiums and procedural requirements. The probit model analysis identifies that education, organizational membership, mass media exposure, and extension contacts have a positive influence on farmers' awareness levels. However, negative perceptions persist, particularly concerning delayed claims, inadequate compensation, and high premium rates. This study recommends the implementation of government-led awareness programs designed to educate and cultivate greater awareness among farmers regarding crop insurance and its benefits. Such initiatives could enhance demand for crop insurance to mitigate the adverse impacts and ensure greater sustainability of farmers' livelihoods.

Consumer Preference and Willingness to Pay for Rice Attributes in China: Results of a Choice Experiment.

Understanding urban consumers' preferences for rice attributes is crucial for rice breeders, producers, and retailers to meet diverse and evolving market demands. Based on the sample data of 629 rice consumers in Shanghai, China, obtained through the choice experiment (CE) approach, this study uses the mixed logit (ML) model to analyze consumers' preferences and willingness to pay (WTP) for food safety labels, brands, nutritional quality, and taste quality. Furthermore, the latent class (LC) model examines the heterogeneity in consumer group preferences. The research findings highlight that consumers prioritize taste quality as the most crucial attribute, followed by nutritional quality, food safety labels, and brand attributes. The premium rates for superior taste quality, organic certification labels, and green certification labels exceeded 100%. Interestingly, while combining organic certification with well-known international or domestic brands does not uniformly boost consumer preferences, incorporating green certification alongside well-known international or domestic brands significantly elevates those preference levels. Factors such as the external environment, consumption habits, and personal characteristics significantly influence individuals' preferences for rice attributes. Based on these insights, the study puts forth policy recommendations for rice breeders, producers, and retailers.

Contract Termination and Insurance Enrollment Among Medicare Advantage Beneficiaries

Approximately one-fifth of Medicare Advantage (MA) contracts terminated their participation in the MA program between 2011 and 2020. Little is known about subsequent insurance choices following a termination. To examine the insurance destinations of MA enrollees and the characteristics of enrollees who switch into traditional Medicare (TM) after a contract termination. This cross-sectional study examined MA program data of MA beneficiaries in the Medicare Master Beneficiary File from 2016 to 2018. Statistical analysis was performed from June 2023 to April 2024. Beneficiary characteristics, including age, sex, race and ethnicity, dual eligibility; hospital, nursing home, and home health utilization; and contract characteristics, including plan type, vertical integration, premium, and MA star rating. The main outcome was switching to TM in the year immediately after termination. We also evaluated the characteristics of contracts among those who remained in MA. A total of 117 681 beneficiaries were included in this analysis (64 654 [54.9%] female; 409 [0.4%] American Indian or Alaska Native; 2817 [2.4%] Asian; 76 725 [16.8%] Black; 11 131 [9.5%] Hispanic; 81 226 [69.0%] White; and 2373 [2.0%] other race or ethnicity; 27 078 [23.0%] dual-eligible; mean [SD] age, 71.2 [10.4] years). Following a contract termination, 20.1% (95% CI, 19.9%-20.4%) of enrollees switched to TM, including 32.7% (95% CI, 32.4%-33.1%) of dual-eligible beneficiaries and 16.4% (95% CI, 16.2%-16.5%) of non-dual-eligible beneficiaries. In nonterminated contracts, the concurrent switch rate was 6.2% (95% CI, 6.2%-6.2%) for all, 10.4% (95% CI, 10.4%-10.4%) for dual-eligible beneficiaries and 5.1% (95% CI, 5.1%-5.1%) for non-dual-eligible enrollees. The highest switch rates to TM were among Black enrollees (32.3% [95% CI, 31.7%-32.8%]) and those with prior use of hospital (31.3% [95% CI, 30.7%-31.9%], nursing home, 41.4% [95% CI, 40.4%-42.4%], or home health care (28.3% [95% CI, 27.4%-29.2%]). Beneficiaries who stayed in MA selected higher-rated star plans (mean posttermination contract star rating of 3.8 [95% CI, 3.8-3.8] stars compared with 3.3 [95% CI, 3.3-3.3] stars in the terminated year), but did not pay more in monthly premiums with 66.5% (95% CI, 66.2%-66.8%) paying the same or lower premiums. In this cross-sectional study, 1 in 5 MA beneficiaries switched to TM after a contract termination, with Black beneficiaries and those with more intensive health needs having the highest switch rates. These findings highlight the need to examine consequences of contract terminations and subsequent insurance destinations on access to care and health outcomes, especially among those with marginalized race and ethnicity, those who are dual-eligible, and beneficiaries with higher health care needs.

Actuarial implications of prevented planting coverage

AbstractWithin the Federal Crop Insurance Program (FCIP), prevented planting (PP) coverage provides payments for pre‐planting costs associated with crops that ultimately cannot be planted due to adverse weather. PP indemnities, which are not considered production losses within the FCIP rating methodology, influence premium rates differently than typical losses. This study utilizes a panel data set consisting of approximately 77,697 county level observations from RMA's summary of business to identify the relationship between the prevalence of prevent plant use and a number of actuarial related outcomes. Overall, we find that increases in the share of total indemnities attributable to PP claims over the preceding 10 years produce generally negligible changes to loss ratios, but can significantly increase loss ratios among subsets of the FCIP that heavily utilize PP coverage (greater than 20% of total indemnities). This suggests that, despite loss ratios being robust to typical rates of PP claims, actuarial performance can degrade when PP payments are high relative to indemnities from all other perils. Additionally, a simulation is conducted in which prevent plant indemnities are counterfactually treated as production losses when pricing FCIP contracts as opposed to current practice of recovering prevent plant costs via a fixed rate load. Doing so suggests significant improvements in loss ratios for crops that have historically had high shares of prevent plant indemnities, however, these improvements come at the expense of higher premiums and reduced demand for crop insurance.

Optimal premium pricing in a competitive stochastic insurance market with incomplete information: A Bayesian game-theoretic approach

This paper examines a stochastic one-period insurance market with incomplete information. The aggregate amount of claims follows a compound Poisson distribution. Insurers are assumed to be exponential utility maximizers, with their degree of risk aversion forming their private information. A premium strategy is defined as a mapping between risk-aversion types and premium rates. The optimal premium strategies are denoted by the pure-strategy Bayesian Nash equilibrium, whose existence and uniqueness are demonstrated under specific conditions on the insurer-specific demand functions. Boundary and monotonicity properties for equilibrium premium strategies are derived.