The US health insurance market is becoming less competitive due to mergers and withdrawal of services from certain states. This column examines how this affects consumers through insurance premiums and hospital reimbursement rates. Using employer-sponsored insurance data from California, it finds that the relationship between insurer competition and health care spending depends on institutional and market structure. If premiums can be constrained through effective regulation or negotiation, then reduced competition might lead to lower costs. Absent such constraints, consumers will likely be harmed.
Kate Ho, Robin Lee, 16 September 2016
Gaston Gelos, Nico Valckx, 27 July 2016
In recent years, the life insurance sector has become more systemically important across advanced economies. This increase is largely due to growing common exposures and to insurers’ rising interest rate sensitivity. This column analyses the evolution of the insurance sector’s contribution to systemic risk. Overall, life insurers do not seem to have markedly changed their asset portfolios toward riskier assets, although smaller and weaker insurers in some countries have taken on more risk. The findings suggest that supervisors and regulators should take a more macroprudential approach to the sector.
Christian Thimann, 31 May 2016
The IMF’s latest Global Financial Stability Report devotes for the first time a chapter to the systemic risks potentially associated with the insurance sector and how regulatory bodies should respond. This column examines the key points and proposes a way forward for the global regulatory framework for insurance. In particular, it argues for the importance of not treating the sector in the same way as the banking sector as the two operate very different business models. Similarly, for an activity-based approach, a regulatory focus on just nine ‘systemically important’ insurers rather than the sector as a whole is flawed.
Avinash Persaud, 14 April 2016
Since the breakup of Bretton Woods in the early 1970s, the housing market has been at the centre of the biggest banking crises across the world. This column considers the nexus between housing, banking, and the economy, and how these ties can be broken. It argues for two modest regulatory changes in banking and insurance. These would result in life insurers and pension funds providing mortgage finance, better insulating the economy and homeowners from the housing cycle.
Savannah Bergquist, Joan Costa-i-Font, Katherine Swartz, 10 July 2015
Limited insurance for long-term care threatens the sustainability of publicly funded social assistance programmes such as Medicaid in the US. This column looks at the effectiveness of a programme that encourages middle-income people to save for possible long-term care expenses. The evidence so far indicates that although this programme has indeed increased insurance applications, it has not increased insurance uptake.
Jason Furman, Ron Shadbegian, Jim Stock, 25 February 2015
The cost of delaying climate action has been studied extensively. This column discusses new findings based on a meta-analysis of published model runs. A one-decade delay in addressing climate change would lead to about a 40% increase in the net present value cost of addressing climate change. If anything, the methodology used in this analysis could understate the cost of delay. Uncertainty and the possibility of tipping points provide a motivation for more action as a form of insurance against worse outcomes.
Claudio Michelacci, Hernán Ruffo, 18 November 2014
Like any insurance mechanism, unemployment benefits involve a trade-off between risk sharing and moral hazard. Whereas previous studies have concluded that unemployment insurance is close to optimal in the US, this column argues that replacement rates should vary over the life cycle. Young people typically have little means to smooth consumption during a spell of unemployment, while the moral hazard problems are minor – regardless of replacement rates, the young want jobs to improve their lifetime career prospects and to build up human capital.
Kuniyoshi Saito, Daisuke Tsuruta, 14 November 2014
In Japan, loans with 100% guarantees account for more than half of all loans covered by public credit guarantee schemes, but banks claim that they do not offer loans without sufficient screening and monitoring even if the loans are guaranteed. This column presents evidence of adverse selection and moral hazard in Japanese credit guarantee schemes. The problem is less severe for loans with 80% guarantees.
Christian Thimann, 17 October 2014
Having completed the regulatory framework for systemically important banks, the Financial Stability Board is turning to insurance companies. The emerging framework for insurers closely resembles that for banks, culminating in the design and calibration of capital surcharges. This column argues that the contrasting business models and balance sheet structures of insurers and banks – and the different roles of capital, leverage, and risk absorption in the two sectors – mean that the banking model of capital cannot be applied to insurance. Tools other than capital surcharges may be more appropriate to address possible concerns of systemic risk.
Christian Thimann, 10 October 2014
Regulation of the global insurance industry, an emerging challenge in international finance, has two central objectives: strengthening the oversight of insurance companies designated ‘systemically important’; and designing a global capital standard for internationally active insurers. This column argues that it is a Herculean task because the business model of insurance is less globalised than other areas in finance; because global regulators have less experience of insurance than banking where global standards have been pursued for a quarter of a century; and because, as yet, there is limited research-based understanding of the insurance business and its interactions with the financial system and the real economy. But in the aftermath of the global financial crisis and the AIG disaster, regulators are under strong pressure to make progress.
Daniel Gros, 19 March 2014
Since the onset of the sovereign debt crisis, the argument for a system of fiscal transfers to offset idiosyncratic shocks in the Eurozone has gained adherents. This column argues that what the Eurozone really needs is not a system which offsets all shocks by some small fraction, but a system which protects against shocks which are rare, but potentially catastrophic. A system of fiscal insurance with a fixed deductible would therefore be preferable to a fiscal shock absorber that offsets a certain percentage of all fiscal shocks.
David Veredas, Matteo Luciani, Mardi Dungey, 22 April 2013
An unintended consequence of tighter banking regulation is that businesses are looking beyond banks for their loans. This column argues that this arbitrage opportunity may create systemic risks, including amongst major insurance companies. Using a new methodology, evidence tentatively suggests that insurers are indeed becoming systemic.
Jon Danielsson, Roger Laeven, Enrico Perotti, Mario Wüthrich, Rym Ayadi, Antoon Pelsser, 23 June 2012
October 2011 saw the latest draft of Solvency II, the European Union’s code for regulation of the insurance industry. This column argues that the latest proposals need to be drafted again, urgently.
Joan Costa-i-Font, 09 June 2012
As if the current debt problems for industrialised economies were not enough, many face the added challenge of ageing populations. This column argues that the biggest threat from an ageing population is the lack of cover for long-term care.
Giuseppe Bertola, Winfried Koeniger, 29 April 2011
Why do public and private insurance coexist in all countries? This column analyses the determinants of the optimal insurance mix. It reveals how public insurance schemes are constrained if available information on private insurance transactions is incomplete. It discusses how the optimal insurance mix strikes a balance between the overall costs and benefits of insurance as well as the preservation of work incentives.
Con Keating, Jon Danielsson, 18 March 2011
In crises, insurance companies' asset values may fall significantly without a corresponding drop in their liabilities. European insurers have argued that their liabilities should be discounted by a higher rate during crises, lest regulations force them to raise more capital at exactly the wrong time. This column argues that that would be the wrong approach to the problem.
Giorgio Brunello, Pierre-Carl Michaud, Anna Sanz-de-Galdeano, 06 October 2009
Should the government intervene to reduce obesity on the basis of equity or efficiency? This column gives reasons to be sceptical common arguments for such interventions. Unless health insurance provision creates significant moral hazard problems that encourage obesity, there is little reason to attack obesity on the basis of health insurance externalities.
Hans Gersbach, 08 August 2009
The crisis is a brutal reminder of the fragility of banks. This column suggests that managers of large banks be obliged to act as insurers against systemic crises. This would create incentives for them to be concerned about the stability of the banking system as a whole.
Monika Bütler, 13 February 2009
Pension system reforms have increased individual choice and individual risk. This column says that the current crisis proves that those reforms exposed individuals to too much risk. It argues for greater use of intergenerational transfers and says that it would be better if retirement plans were treated as insurance rather than pure investment decisions.
Esther Duflo, 25 April 2008
Rising food prices are hurting many poor people, but they are helping poor agricultural producers. Food price volatility, on the other hand, is bad for everyone. This column explains poor people’s need for food price variability insurance.