Barriers to household risk management: evidence from India
Financial engineering offers the potential to significantly reduce the consumption fluctuations faced by individuals, households, and firms. Yet much of this potential remains unfulfilled. This paper studies the adoption of an innovative rainfall insurance product designed to compensate low-income Indian farmers in the event of insufficient rainfall during the primary monsoon season. We first document relatively low adoption of this new risk management product: Only 5-10 percent of households purchase the insurance, even though they overwhelmingly cite rainfall variability as their most ...
Anxiety in the face of risk
We model an ?anxious? agent as one who is more risk averse with respect to imminent risks than with respect to distant risks. Based on a utility function that captures individual subjects? behavior in experiments, we provide a tractable theory relaxing the restriction of constant risk aversion across horizons and show that it generates rich implications. We first apply the model to insurance markets and explain the high premia for short-horizon insurance. Then, we show that costly delegated portfolio management, investment advice, and withdrawal fees emerge as endogenous features and ...
A Closer Look at the Correlation Between Google Trends and Initial Unemployment Insurance Claims
Since the onset of the pandemic, there has been growing interest in tracking labor market activity with “big data” sources like Google Trends.1 Just as an example, one can track how the number of Google searches with the term unemployment office has changed over the past week for the Chicago metro area or explore how unemployment became one of the top searched issues across the U.S. during the early months of the pandemic here.
What Explains the Decline in Life Insurance Ownership?
Life insurance ownership has declined markedly over the past 30 years, continuing a trend that began as early as 1960. In 1989, 77 percent of households owned life insurance (see figure 1). By 2013, that share had fallen to 60 percent. This article analyzes factors that might have contributed to the decline in life insurance ownership from 1989 to 2013. The focus of our analysis is on two broad sources of potential change in the demand for life insurance: changes in the socioeconomic and demographic characteristics of the population and changes in how those same characteristics are associated ...
The Growth and Challenges of Cyber Insurance
Cyberattacks have grown in frequency and cost over the past decade, with high-profile cases, such as the 2013 Target data breach, the 2017 Equifax data breach, and the leak of Democratic National Committee emails during the 2016 election making national headlines. Ransomware attacks, intellectual property theft, and fraud cost companies billions in recovery expenses, fines, and lost revenues every year. More firms are purchasing cyber insurance as a way to cover losses and expenses resulting from cyber incidents.
Catastrophe Bonds: A Primer and Retrospective
Since 1997, the catastrophe (CAT) bond market has provided the insurance industry with protections against natural disasters that have grown more frequent and costly. This article explains how CAT bonds work, and then looks at how the market for them has grown in size, coverage, and sophistication over the past two decades. It also explores how and why different types of institutions use CAT bonds to transfer insurance risks.
How Health Insurance Improves Financial Health
Low-income Americans who became eligible to enroll in Medicaid due to the Affordable Care Act saw their medical debt cut in half.
How Much Risk Do Variable Annuity Guarantees Pose to Life Insurers?
Over the past two decades, guarantees that protect variable annuities? balances when their underlying investments perform poorly have become quite popular. Collectively, these guarantees can pose a sizable risk to life insurers. This article explores the different types of variable annuity guarantees, the extent of the risk they pose to insurers, and the practices used by insurers to mitigate against such risk.
Homeowners’ Financial Protection Against Natural Disasters
Over the past few years, many people in the U.S. have had to deal with damage to their homes from natural disasters, such as Hurricane Harvey. This article explains the different kinds of financial protection from natural catastrophes that homeowners can access from the private and public sectors.
Financial Incentives, Hospital Care, and Health Outcomes: Evidence from Fair Pricing Laws
It is often assumed that financial incentives of healthcare providers affect the care they deliver, but this issue is surprisingly difficult to study. The recent enactment of state laws that limit how much hospitals can charge uninsured patients provide a unique opportunity. Using an event study framework and panel data from the Nationwide Inpatient Sample, we examine whether these regulations lead to reductions in the amount and quality of care given to uninsured patients. We find that the introduction of a fair pricing law leads to a seven to nine percent reduction in the average length of ...