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Providing pandemic business interruption coverage with double trigger cat bonds
The aim of this paper is to show how qualified investors in cat bonds can offer adequate pandemic business interruption protection in a comprehensive public–private coverage scheme. First, we propose a numerical model to expose how cat bonds can contribute to complement standard re/insurance by improving coverage of cedents even though risks are positively correlated during a pandemic. Second, we introduce double trigger pandemic business interruption cat bonds, which we name PBI bonds, and discuss their precise characteristics to provide efficient coverage. A first trigger should be pulled when the World Health Organization declares a Public Health Emergency of International Concern (PHEIC). The second trigger determines the payout of the bond based on the modelised business interruption losses of an industry in a country. We discuss moral hazard, basis risk, correlation and liquidity issues which are critical in the context of a pandemic. Third, we simulate the life of theoretical PBI bonds in the restaurant industry in France by using data gathered during the COVID-19 pandemic.
Greenfield foreign direct investments and insurance market diversification: a cross-country analysis
Foreign direct investments (FDIs) influence insurance markets directly, through foreign insurers’ participation in domestic markets, and indirectly, through cross-sectoral spillover effects. This article focuses on the indirect effects and examines the relationship between greenfield FDIs and diversification in European insurance markets. Using panel data of 28 countries for the period 2004–2019, we find that greenfield FDIs induce greater diversification of insurance markets. Our results suggest a non-linear relationship and potential mediating effects of financial development on the FDI–insurance relationship. Robustness tests using different measures of market diversification, model specifications and averaging of the data show consistent results.
COVID-19 off-label uses of medicines: the role of civil liability and regulation
Physicians can prescribe medicines for different indications than the tested and authorised ones. Such ‘off-label’ uses expand therapeutic options but also create uncertainties. The COVID-19 pandemic triggered new off-label uses and, despite issues being reported in the literature, these have not resulted in substantial personal injury litigation in the EU. Against this backdrop, this article argues that civil liability plays, in fact, a limited role in off-label uses. In particular, civil liability may incentivise health actors to follow and react to the development of the evidence basis for off-label uses. However, it is ultimately unable to incentivise the conduct of additional research on off-label uses. This is problematic, as off-label research is key to protecting patients and is recommended by international medical ethics. The article concludes by critically discussing proposed mechanisms to incentivise off-label research. It argues that extending civil liability for unknown risks may have undesired effects on insurability and innovation, and most regulatory proposals seem ineffective. Building on the 2014 Italian reform of off-label uses, the article proposes the establishment of a fund financed by mandatory contributions from the industry, which should be used by pharmaceutical regulators to promote off-label research and develop guidelines for prescribers.
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Empirical analyses of selection and welfare in insurance markets: a self-indulgent survey
This review article surveys work that has been done using an empirical framework for analyzing selection in insurance markets developed by Einav et al. (Einav et al., Quarterly Journal of Economics 125:877–921, 2010a). We briefly review that framework, and then describe a number of empirical applications that researchers have undertaken across an array of settings in both insurance and credit markets. We also discuss some of the useful extensions to the original framework that others have made and applied. The review is intended to be useful for scholars who may want to apply the framework in their own work on insurance, credit, or other selection markets.
Optimal unemployment accounts based on observable parameters
Baily (1978)’s model provides an observable condition of optimality for unemployment benefits (“b”). We add unemployment accounts (UAs) into the model, where employed individuals deposit a “s” saving rate and UAs finance unemployment benefits until their funds are exhausted and tax-financed benefits begin. The idea is that UAs reduce the distortion caused by pooling financed benefits, but in doing so they lower consumption smoothing across states of nature. We found that Baily (1978)’s rule for optimal benefits remains unchanged if UAs are added into his model, and we found a simple and easily observable rule for the optimal saving rate into UAs: the proportion of unemployment to be self-financed should equal the ratio of unemployment duration elasticity with respect to s and b.
Cognitive abilities and life insurance holdings: evidence from 16 European countries
The aim of this study is to examine the relationship between two types of cognitive abilities (numeracy and recall) and life insurance holdings in European countries. Households with better numeracy and recall are more likely to own life insurance. Interaction effects indicate a higher level of education decreases the positive effect of numeracy on life insurance holdings and increases the positive effect of recall on life insurance holdings. Multinomial regressions indicate that recall has a positive impact on the decisions to hold term life, whole life, and both term and whole life insurance policies and a negative impact on the decision not to hold any type of life insurance policy. We also find that recall has a greater impact on the decision to own term life policies than on the decision to own whole life (both term and whole life) policies. One possible reason is whole life policies consist of many options that are difficult to comprehend even with higher cognitive abilities. One implication of this study is marketing by life insurers should take into account household cognitive abilities.