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

Volume 85, Issue 4

Actuarial Independence and Managerial Discretion

Appointed actuaries are responsible for estimating the largest liability on property–casualty insurance companies’ balance sheet. Actuarial independence is crucial in safeguarding accurate estimates, where this independence is self‐regulated by actuarial professional institutions. However, professional conflicts of interest arise when appointed actuaries also hold an officer position within the same firm, as officer actuaries also face managerial incentives. Using a sample of U.S. insurers that employ in‐house appointed actuaries from 2007 to 2014, we find evidence that officer actuaries have different reserving practices than nonofficer actuaries. This difference in reserving is associated with tax shielding and earnings management incentives. Results are consistent with managerial discretion dominating actuarial independence; they are economically significant and should be of concern to regulators and professional institutions.

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Journal of Risk and Insurance

Volume 85, Issue 3

Does Limiting Allowable Rating Variation in the Small Group Health Insurance Market Affect Employer Self-insurance?

The Affordable Care Act (ACA) imposes adjusted community rating in the small group market, which employers can avoid by self‐insuring, raising concerns about adverse selection. We evaluate the impact of limiting allowable rating variation on employer self‐insurance across industries with varied health risk, using cross‐state variation in pre‐ACA rating regulations, the nationally representative 2008–2013 KFF/HRET Employer Health Benefits Survey, and a triple‐difference regression approach. We find that lower risk employers subject to laws limiting allowable premium rating variation have a predicted probability of self‐insurance that is about 18 percentage points higher than otherwise‐similar higher risk employers, suggesting that these selection concerns are warranted.

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Journal of Risk and Insurance

Volume 86, Issue 1

Are Green Car Drivers Friendly Drivers? A Study of Taiwan’s Automobile Insurance Market

By integrating claims data from Taiwan’s compulsory liability insurance with a unique data set on driving mileage records for each car, this article examines whether green car drivers have lower accident risk. We find that after controlling for the mileage driven per car, the traffic accident risk of green car drivers is significantly lower. Our empirical evidence also confirms that green car drivers are, on average, high‐mileage drivers. Moreover, driving more results in a higher accident probability for green car drivers despite their being lower‐risk drivers. The policy implications are discussed.

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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 21, Issue 3

A Conceptual Model for Pricing Health and Life Insurance Using Wearable Technology

A health risk score was created to investigate the possibility of using data provided by wearable technology to help predict overall health and mortality, with the ultimate goal of using this score to enhance the pricing of health or life insurance. Subjects were categorized into low‐, increased‐, and high‐risk groups, and after results were adjusted for age and sex, Cox proportional hazards analysis revealed a high level of significance when predicting mortality. High‐risk subjects were shown to have a hazard ratio of 2.1 relative to those in the low‐risk group, which can be interpreted as an equivalent increase in age of 7.8 years. Our findings help to demonstrate the predictive capabilities of potential new rating factors, measured via wearables, that could feasibly be incorporated into actuarial insurance pricing models. The model also provides an initial step for insurers to begin to consider the incorporation of continuous wearable data into current risk models. With this in mind, an emphasis is placed on the limitations of the study in order to highlight the areas that must be addressed before incorporating aspects of this model within current pricing models.

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Risk Management & Insurance Review

Volume 22, Issue 1

Do Property–Casualty Insurance Firms Locate to Minimize Insurance Premium Taxes?

States levy insurance premium taxes, which are essentially gross receipt taxes on premiums, with insurance companies paying the higher of the tax rate in the state in which the company is domiciled and the state in which the policy is written. Using firm‐level data for the property–casualty (P‐C) insurance industry, we estimate the extra insurance premium tax that P‐C insurance firms pay by not locating in the state that minimizes their insurance premium taxes. We find that only 4.78 percent of P‐C firms are located in the state that minimizes their insurance premium taxes. We explore the relationship between the extra tax paid and other factors that are thought to be associated with firm location choice. We find that P‐C firms appear to trade off higher taxes to locate in a state that is more urban.

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Risk Management & Insurance Review

Volume 22, Issue 2

As You Like It: Explaining the Popularity of Life-cycle Funds with Multi Cumulative Prospect Theory

Life-cycle (or target-date) funds are funds which typically decrease their risk exposure over time. They have been very successful in many countries in particularly in the segment of old age provision. However, Expected Utility Theory (EUT) cannot explain their popularity. Moreover, recent results of Graf (2016) imply that not only EUT but also its behavioral counterpart Cumulative Prospect Theory (CPT) is often not able to explain the popularity of these products, since for each life-cycle fund a corresponding balanced fund can be constructed which is preferable from the investor’s perspective in most circumstances. In a very recent paper, Ruß and Schelling (2018) have argued that potential future changes in an investment’s value already impact the decision of long-term investors at outset. Based on this, they have introduced Multi Cumulative Prospect Theory (MCPT) which is based on CPT and considers the subjective utility generated by annual value changes. This paper shows that for MCPT-investors, life-cycle funds are typically more attractive than their corresponding balanced funds since they reduce the potential losses towards the end of the investment horizon. Hence, our findings provide an explanation for inferior decisions in old age provision. This can serve as a basis to improve such decisions.

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