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"INSURANCE CONTRACT"
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Catastrophe risk financing in developing countries : principles for public intervention
'Catastrophe Risk Financing in Developing Countries' provides a detailed analysis of the imperfections and inefficiencies that impede the emergence of competitive catastrophe risk markets in developing countries. The book demonstrates how donors and international financial institutions can assist governments in middle- and low-income countries in promoting effective and affordable catastrophe risk financing solutions. The authors present guiding principles on how and when governments, with assistance from donors and international financial institutions, should intervene in catastrophe insurance markets. They also identify key activities to be undertaken by donors and institutions that would allow middle- and low-income countries to develop competitive and cost-effective catastrophe risk financing strategies at both the macro (government) and micro (household) levels. These principles and activities are expected to inform good practices and ensure desirable results in catastrophe insurance projects. 'Catastrophe Risk Financing in Developing Countries' offers valuable advice and guidelines to policy makers and insurance practitioners involved in the development of catastrophe insurance programs in developing countries.
eBook
Bayesian Estimation of Possibly Similar Yield Densities: Implications for Rating Crop Insurance Contracts
The Agricultural Act of 2014 solidified insurance as the cornerstone of U.S. agricultural policy. The Congressional Budget Office (2014) estimates that this act will increase spending on agricultural insurance programs by $5.7 billion to a total of $89.8 billion over the next decade. In light of the sizable resources directed toward these programs, accurate rating of insurance contracts is of the utmost importance to producers, private insurance companies, and the federal government. Unlike most forms of insurance, agricultural insurance is plagued by a paucity of spatially correlated data. A novel interpretation of Bayesian Model Averaging is used to estimate a set of possibly similar densities that offers greater efficiency if the set of densities are similar while seemingly not losing any if the set of densities are dissimilar. Simulations indicate that finite sample performance—in particular small sample performance—is quite promising. The proposed approach does not require knowledge of the form or extent of any possible similarities, is relatively easy to implement, admits correlated data, and can be used with either parametric or nonparametric estimators. We use the proposed approach to estimate U.S. crop insurance premium rates for area-type programs and develop a test to evaluate its efficacy. An out-of-sample game between private insurance companies and the federal government highlights the policy implications for a variety of crop-state combinations. Consistent with the simulation results, the performance of the proposed approach with respect to rating area-type insurance—in particular small sample performance—remains quite promising.
Journal Article
Trust and Transparency in Insurance Contract Law: European Regulation and Comparison of Laws
The aim of this paper is to examine transparency principles under English and German Law, EU acquis and PEICL and to answer the question whether current legal regulation reflects high standards of transparency requirements and offer adequate consumer protection. The author is particularly interested in investigating are there any typical, common or shared characteristics in the regulation of transparency requirements across these jurisdictions. The focus of this paper is on consumer insurance contracts only. The main argument is that through transparency we can build consumer's trust in insurance market and offer adequate consumer protection.
Journal Article
The insurance law in Cambodia: the economic modernization and the insurance contract law
This article begins with a brief overview of the Cambodian Economic Development and offers a brief history of the insurance market industry. The article continues with a more detailed discussion about insurance law and a critical look at the current insurance contract law in Cambodia that has yet to establish a sufficient legal framework for its insurance industry's development. The Insurance Law of Cambodia, particularly the insurance contract law, the definition of insurable interest, the principle of duty of good faith, and its remedies are in flawed condition. A suggestion for future legislation reform has then made in this article. Consequently, the discussion and comparison of the current status of Cambodian insurance law with the well-developed insurance law in common law system will be taken part as a route reference for future reform in Cambodia.
Journal Article
A Stackelberg game model for insurance contracts in green supply chains with government intervention involved
There is often a noticeable lack of coordination in green supply chains induced by the conflict of goals, which weakens the chains’ performance. Ignoring this problem sometimes causes the system to fail. In such cases, governments may intervene to coordinate supply chains and reduce their pollutants. Governments themselves have large state-owned companies such as gas, oil and electricity which include many suppliers that provide the needed products. One way of coordinating green supply chains with government intervention is to use contracts. This study deals with green supply chain coordination with government intervention through mediating state-owned companies and the implementation of insurance. One of the important contributions of this paper is considering the insurance contract in coordinating the green supply chain. The defined insurance contract structure seeks to reduce the risk of apparent bankruptcy and, thus, reduce pollutants. The performance of the provided insurance contract is comparable to that of the cost-sharing contract as a commonly used tool to coordinate green supply chains with government interventions. The model used in this study is the bi-level extensive game model with the Stackelberg approach. At the first level, the employer, i.e., a state-owned company and the government, is postulated as the leader. At the second level, the suppliers are placed as followers. As the model is formulated as a mixed integer program, another contribution of the paper is developing a hybrid algorithm to solve the corresponding problem. The contracts are compared in three scenarios and four states. The results show the superiority of the insurance contract over the cost-sharing contract.
Journal Article
How to derive optimal guarantee levels in participating life insurance contracts
Purpose
The purpose of this paper is to show how an insurance company can maximize the policyholder’s utility by setting the level of the interest rate guarantee in line with his preferences.
Design/methodology/approach
The authors develop a general model of life insurance, taking stochastic interest rates, early default and regular premium payments into account. Furthermore, the authors assume that equity holders must receive risk-adequate returns on their initial equity contribution and that the insurance company has to maintain a solvency restriction.
Findings
The findings show that the optimal level for the interest rate guarantee is in general far below the maximum value typically set by the supervisory authorities and insurance companies.
Originality/value
The authors conclude that the approach of deviating from the maximum interest rate guarantee level given by the regulatory requirements can create additional value for the rational policyholder. In contrast to Schmeiser and Wagner (2014), the second finding shows that the interest rate guarantee embedded in a life insurance product becomes less attractive compared to a pure investment in the underlying asset portfolio to the policyholder when the guarantee level is lowered too far or the contract duration is short. They also refute Schmeiser and Wagner (2014) by showing that the equity capital required by the insurance company increases with the level of the guarantee, even if the insurer is flexible with respect to its asset allocation. The last finding is that a policyholder with higher risk aversion does not generally prefer a higher guarantee level.
Journal Article
Quantile hedging in models with dividends and application to equity-linked life insurance contracts
The paper demonstrates the effect of the dividends on pricing and hedging the European contingent claims under a budget constraint and presents insurance applications. Explicit formulae for the quantile pricing and hedging of the European call option are derived assuming the jump-diffusion model of the financial market. These results are used to determine the premium of the pure endowment with fixed guarantee equity-linked life insurance contract as well as the survival probability of the insured. A numerical example is given to illustrate the role of dividends in valuation and risk management of such insurance contracts.
Journal Article
Insurance contract as the basis for the safety of agricultural producers in the Republic of Srpska
The aim of the paper is to point out the impact of the insurance contract on the safety of agricultural producers in the Republic of Srpska, based on the assumption that the insurance of crops, fruits and animals is a factor that implies elimination of harmful consequences in case of damage. This attitude of the authors is based on the fact that with the conclusion of an insurance contract in agriculture, the part of the responsibility is transferred to the state (by participation in the co-financing of the insurance premium), then to the insurance company (by claiming the damage from the insurance) and finally to the agricultural producers. Bearing in mind that insurance is very present in all segments of the modern society, which implies a great variety of forms of insurance, the authors of this paper start by presenting a general structure and classification of insurance, which also includes the insurance for agricultural purposes. In order to get a realistic picture of the current state of insurance in agriculture in the Republic of Srpska, an analysis of the legal regulation that regulates the mentioned issues was carried out. The authors also conducted a survey among agricultural producers to analyze the reasons why they have a negative interest for this segment of insurance and thus a small number of closed insurance policies with insurance companies. Based on these findings, this paper gives recommendations for the improvement of the situation and proposals for better solutions which would raise the safety of agricultural producers to a higher level.
Journal Article
Insurance Contracts for Hedging Wind Power Uncertainty
This paper presents an insurance contract that the supplier of wind power may subscribe to with an insurance company in order to immunize his/her revenue against the volatility of wind power and prices. Based on empirical evidence, we found that wind power and electricity prices are correlated. Then, we adopted a joint stochastic process to model both time series, which is based on indexed semi-Markov chains for the wind power generation process and on a general Markovian process for the electricity price process. Using a joint stochastic model allows the insurance company to compute the fair premium that the wind power producer has to pay in order to hedge the risk against inadequate revenues. Recursive type equations are obtained for the prospective mathematical reserves of the insurance contract. The model and the validity of the results are illustrated through a real data application.
Journal Article