Journals

Journal of Risk and Insurance

The Journal of Risk and Insurance (JRI) publishes theoretical and empirical research on the topics of insurance economics and risk management. Research in the JRI informs practice, policy-making, and regulation in insurance markets as well as corporate and household risk management. It is currently indexed by the American Economic Association’s Economic Literature Index, RePEc, the Social Sciences Citation Index, and others. Issues of the JRI, from volume one to volume 82 (2015), are available online through JSTOR. Recent issues of the JRI are available through Wiley Online Library. A subscription to the Journal of Risk and Insurance is one of the many benefits of ARIA Membership.

Journal of Risk and Insurance

Early View

Simultaneous borrowing of information across space and time for pricing insurance contracts: An application to rating crop insurance policies

Changing climate and technology can often lead to nonstationary losses across both time and space for a variety of insurance lines including property, catastrophe, health, and life. As a result, naive estimation of premium rates using past losses will tend to be biased. We present three successively flexible data‐driven methodologies to nonparametrically smooth across both space and time simultaneously, thereby appropriately incorporating possibly nonidentically distributed data into the rating process. We apply these methodologies in estimating U.S. crop insurance premium rates. Crop insurance, with global premiums totaling $4.1 trillion in 2018, is an interesting application as losses exhibit both temporal and spatial nonstationarity. We find significant borrowing of information across both time and space. We also find all three methodologies improve both the stability and accuracy of crop insurance premium rates. The proposed methods may be of relevance for other lines of insurance characterized by spatial and/or temporal nonstationary losses.

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Journal of Risk and Insurance

Early View

The Effect of Information Disclosure on Demand for High ‐Load Insurance

Economists, regulators, and consumer protection agencies have highlighted the welfare losses for consumers who purchase high‐load insurance against modest stakes risks. Mandatory information disclosure is a potentially attractive public policy tool that might improve consumers’ choices, but has not been widely tested in insurance settings. We conduct an incentive‐compatible insurance demand experiment, in which we manipulate the information disclosed to subjects. We test whether any of the three most commonly suggested disclosures affect insurance demand, disclosing either (1) the true probability of loss, (2) the contract’s expected loss, or (3) the insurer’s profit on the transaction. Similar to consumers in naturally occurring insurance markets, subjects in the laboratory demonstrate significant demand for high‐load insurance against modest stakes. However, we find no effect of any of the three disclosure treatments on subjects’ insurance choices. We discuss the implications of our results for possible public policy initiatives in insurance markets.

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Journal of Risk and Insurance

Early View

Death by Pokémon GO: The Economic and Human Cost of Using Apps While Driving

We investigate the link between smartphone usage by drivers and increases in insurance premiums by using police accident reports and exploiting the introduction of the augmented reality game Pokémon GO as a natural experiment. We document a disproportionate increase in crashes, vehicular damage, injuries, and fatalities in the vicinity of locations where users can play the game while driving. Ignoring incremental lives lost, the lower bound estimate of the cost of users playing the game while driving translates to an increase in insurance premiums of 2.47 percent.

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Risk Management & Insurance Review

Risk Management and Insurance Review publishes high-quality applied research, well-reasoned opinion and discussion in the field of risk and insurance. Additionally, the Review provides a repository of high-caliber model lectures in risk and insurance, along with articles discussing and evaluating instructional techniques. A subscription to the Risk Management and Insurance Review is one of the many benefits of ARIA Membership.

Risk Management & Insurance Review

Volume 23, Issue 2

Auditor quality, audit fees, organizational structure, and risk taking in the US life insurance industry

Using a system of simultaneous equations, this study examines the relation among external audit monitoring, in the US life insurance industry. We find insurers with higher leverage risk and surplus risk are more likely to use Big‐4 auditors and to pay higher fees. In return, insurers hiring Big‐4 auditors and paying higher audit fees have lower leverage risk and surplus risk. Second, the results suggest that mutual life insurers have a higher leverage risk and surplus risk than stock life insurers. This evidence is in contrast to that for property–liability insurance companies. Third, we find insurers are less likely to hire Big‐4 auditors and to pay higher audit fees after implementation of the Sarbanes–Oxley Act (SOX). Finally, life insurers with Big‐4 auditors or paying higher audit fees are more likely to take lower risks after the implementation of SOX.

 

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Risk Management & Insurance Review

Volume 23, Issue 1

The future of mobility and its impact on the automobile insurance industry

Among the trends impacting most industries are new mobility concepts, digitalization, urbanization, rising environmental awareness, and demographic change. The automobile insurance industry, in particular, is strongly affected by new mobility concepts, including autonomous, shared, and electric vehicles, which are expected to increasingly impact the risk exposure and insurance demand in the future. Identifying and assessing the resulting risk and opportunity landscape from these trends thus becomes a major strategic challenge for insurers. The aim of this paper is to analyze the trends that impact the field of mobility and thus automobile insurers. Based on this, we derive a set of strategic response measures for insurers to enable them to be prepared for the future of mobility.

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Risk Management & Insurance Review

Volume 22, Issue 4

Regulation and the connectedness of insurers to the banking sector: International evidence

Using variation across countries and time in the degree to which regulations restrict banks and insurers from engaging in the same activities, we find that property/liability insurers’ connectedness to the banking sector declines when regulatory restrictions increase, but life insurers’ connectedness to banks does not. The results suggest that the connectedness between life insurers and banks is largely due to these institutions sharing common underlying economic and financial risk factors that exist even when regulation restricts these institutions from engaging in each other’s activities.

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