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232069 (E40, B50) Asymmetric information, moral hazard and the insurance of legal expenses
198
Abstract and Reviews
a two-factor model of the marked-to market value of the credit line, the indebtedness value x, and its mean-verting volatility, V. Once computed, the put is combined with the line fees to determine the commitment net value, and subsequently, the exercise-contingent bank exposure to commitment credit risk. The major pattern which emerges from the put estimates is that the stochastic valitility model generates lower commitment put values for any (x-V) correlation than does the corresponding B-S put formula, except for some at-the-money or slightly in-themoney put options with negative correlations. This is because the level of mean volatility is lower for stochastic volatility commitment put values than for the corresponding B-S ones. The numerical simulations are next used to ascertain how commitment credit risk is affecting the bank's capital requirement. According to the BIS accounting-based procedure, the risk-adjusted balance of short-term commitments is nil; this is not the case when the same risk-adjusted balance is computed by the way of the option-based procedure. Beyond capital sufficiency, the approach also has the advantage of sizing up the impact of commitment credit risk on hte bank's future profits. Keywords: Credit risk, Put options. E20: M A C R O - E C O N O M I C INFLUENCES, G E N E R A L AND M I S C E L L A N E O U S
232065 (E20, B10) Long-Term Care Insurance and Life Insurance Demand Meier V., The Geneva Papers on Risk and Insurance, Volume 23, No. 1, June 1998 This article investigates the interaction between life insurance and long-term care insurance markets on the demand side. In the model utility depends on both consumption and bequest, and utility from consumption is contingent on the state of health. While the demand for life insurance increases both with decreasing income and with a rising degree of altruism, the influences of these two parameters on the demand for long-term care insurance are ambiguous. If the utility stock arising from disability declines, both insurance demands will rise. Keywords: Long-term care insurance, Life insurance. 232066 (E20) The Applicability of the Principles of Private insurance to Social Health Care Insurance, Seen from a Law and Economics Perspective
Faure M., The Geneva Papers on Risk and insurance, Issues and Practice, 23, No. 87, April 1998 This paper contributes to the current discussion about the reform of social insurance in Western Europe and more particularly health insurance, from a law and economics perspective. Keywords: Social Insurance, health insurance. 232067 (E20, E60) Information Disclosure in a Competitive Insurance Market - the Government Role Kukoc K., The Geneva Papers on Risk and Insurance, Issues and Practice, 23, No. 87, April 1998 The paper examines the role of information disclosure in a competitive insurance market and the role of government in facilitating the flow of information between insurance market participants. After an introduction to the theoretical framework, the paper outlines some specifics of information disclosure in insurance and the role for the government. It distinguishes between three main pillars of information disclosure in insurance disclosure of financial information, disclosure of information related to product price and redress mechanisms and disclosure of factors relevant to the risk. The major part of this paper is devoted to insurance regulation and contemporary regulatory issues dealing with disclosure of information in Australia. Finally, the paper emphasises the importance of information disclosure as a regulatory instrument, recognises its limitations, and outline some remaining public policy issues. Keywords: Information disclosure, Regulation. E26: PUBLIC H E A L T H 232O68 (E26) The Evolution of Health Insurance in the United States Compton R.E., Schlackman N., The Geneva Papers on Risk and Insurance, Issues and Practice, 23, No. 86, 1998 The authors provide an overview of the continuing evolution in the U.S. health insurance market, the growing dominance of managed care and the many ways in which managed care can and does enhance the quality of care while controlling costs. Keywords: Health insurance, managed care. E40: BUSINESS E C O N O M I C S , G E N E R A L AND MISCELLANEOUS
232069 (E40, B50) Asymmetric Information, Moral Hazard and the
Abstract and Reviews
Insurance of Legal Expenses Bowles R., Rickmann N., The Geneva Papaers on Risk and Insurance, Issues and Practice, 23, No. 87, April 1998 The purpose of this paper is to make a comparison between the private and social insurance of legal expenses in the UK, and to relate developments in these two sectors with analytical and policy issues arising in oher spheres in which professional services are delivered via a mixture of private and social insurance institutions. The authors show that parallels with the provision of health care in the US, and recently in the UK, can illuminate some of the issues facing private and social insurers alike. The authors argue also that the UK government's proposal to move to a system of "bulk contracts" for the provision of publicly subsidised legal service can be interpreted as an effort to counter the significant agency problems arising within the social insurer-private provides setting of the present Legal Aid system. Keywords: Insurance of legal expenses, Moral hazard. 232070 (E40, B52)
The Corporate Demand for Insurance: A Strategic Perspective Ashby S., Diacon S.R., The Geneva Papaers on Risk and Insurance, Issues and Practice, 23, No. 86, 1998 The purpose of this paper is to discuss the possibility that decisions on corporate insurance, purchases may have a strategic dimension. The conventional literature has focused on the ability of insurance to add value to the firm by limiting the impact of risk on risk averse stakeholders or reducing the cost of such risk. The key argument in this paper is that, under certain circumstances, the corporate demand for insurance may be motivated by a company's strategic decisions on output and price risk. Keywords: Corporations, Decisions. E43: RISK MANAGEMENT 232071 (E43, B50)
Long Tail (Liability) Risks and Claims Made Policies Spier J., The Geneva Papaers on Risk and Insurance, Issues and Practice, 23, No. 87, April 1998 Insurers are sounding the alarm even more. They express serious concern about the trends in tort liability law (the advancing of strict liability), the increasing claims consciousness, the skyrocketing claims, the growing tittle elapsing between the moment where the damage causing event takes place, the occurrence of the damage and the claim is brought and the decreasing predictability of the future.
199
Claims made-policies are often deemed to be the only solution to keep the floodgates shut. However, such policies incur fierce criticism by legislators, courts and doctrine. This begs the most intriguing question should claims made-policies be damned to hell. It is possible to find a compromise between the interests of insurers and insured (or victims)? And, should we strive for such a compromise? Kevwords: Liabili~ insurance, Long tail risks. 232072 (E43, B50)
Insuring the Uninsurable? The Appeal of the Circumstances Clause Schoorens G., Van Schoubroeck C., The Geneva Papaers on Risk and Insurance, Issues and Practice, 23, No. 87, April 1998 Liability insurance provides coverage for liability incurred by the insured within the period of coverage. In many cases, it is obvious whether liability was incurred within or outside this period. In motor vehicle liability for example, negligent driving, collision and claim by the victim generally take place within a period of hours, days or weeks. Other liabilities on the other hand take much more time to develop. Therefore, they are called "long tail" liabilities. Mostly quoted in this category are liabilities for detective products, environmental damage, malpractice and E & O. From the initial incident leading to exposure to damage, over the first signs of such damage until the latent manifestation of loss in all its aspects, to the filing of the claims by the victim and the sentence of the court, many years or even decades can elapse. Because of this, assigning a specific date to the moment when liability is established becomes difficult and all the more crucial. For it is quite possible that during this process of establishing liability, the insured has switched insurers once or even more, each of which has given coverage during only a part of this development process. Which insurer will in that case be liable to indemnity the victim? Keywords: Long tail risks, UninsurabiliD,. 232073 (E43, B50)
Comments on the Appeal of the Circumstances Clause and the Uninsurability of Long Tail Risks Wagner G., The Geneva Papaers on Risk and Insurance, Issues and Practice, 23, No. 87, April 1998 The author present a succinct and interesting analysis of the actuarial problems posed by long tail liabilities. Keywords: Long tail risks, Uninsurabili~.
Abstract and Reviews
a two-factor model of the marked-to market value of the credit line, the indebtedness value x, and its mean-verting volatility, V. Once computed, the put is combined with the line fees to determine the commitment net value, and subsequently, the exercise-contingent bank exposure to commitment credit risk. The major pattern which emerges from the put estimates is that the stochastic valitility model generates lower commitment put values for any (x-V) correlation than does the corresponding B-S put formula, except for some at-the-money or slightly in-themoney put options with negative correlations. This is because the level of mean volatility is lower for stochastic volatility commitment put values than for the corresponding B-S ones. The numerical simulations are next used to ascertain how commitment credit risk is affecting the bank's capital requirement. According to the BIS accounting-based procedure, the risk-adjusted balance of short-term commitments is nil; this is not the case when the same risk-adjusted balance is computed by the way of the option-based procedure. Beyond capital sufficiency, the approach also has the advantage of sizing up the impact of commitment credit risk on hte bank's future profits. Keywords: Credit risk, Put options. E20: M A C R O - E C O N O M I C INFLUENCES, G E N E R A L AND M I S C E L L A N E O U S
232065 (E20, B10) Long-Term Care Insurance and Life Insurance Demand Meier V., The Geneva Papers on Risk and Insurance, Volume 23, No. 1, June 1998 This article investigates the interaction between life insurance and long-term care insurance markets on the demand side. In the model utility depends on both consumption and bequest, and utility from consumption is contingent on the state of health. While the demand for life insurance increases both with decreasing income and with a rising degree of altruism, the influences of these two parameters on the demand for long-term care insurance are ambiguous. If the utility stock arising from disability declines, both insurance demands will rise. Keywords: Long-term care insurance, Life insurance. 232066 (E20) The Applicability of the Principles of Private insurance to Social Health Care Insurance, Seen from a Law and Economics Perspective
Faure M., The Geneva Papers on Risk and insurance, Issues and Practice, 23, No. 87, April 1998 This paper contributes to the current discussion about the reform of social insurance in Western Europe and more particularly health insurance, from a law and economics perspective. Keywords: Social Insurance, health insurance. 232067 (E20, E60) Information Disclosure in a Competitive Insurance Market - the Government Role Kukoc K., The Geneva Papers on Risk and Insurance, Issues and Practice, 23, No. 87, April 1998 The paper examines the role of information disclosure in a competitive insurance market and the role of government in facilitating the flow of information between insurance market participants. After an introduction to the theoretical framework, the paper outlines some specifics of information disclosure in insurance and the role for the government. It distinguishes between three main pillars of information disclosure in insurance disclosure of financial information, disclosure of information related to product price and redress mechanisms and disclosure of factors relevant to the risk. The major part of this paper is devoted to insurance regulation and contemporary regulatory issues dealing with disclosure of information in Australia. Finally, the paper emphasises the importance of information disclosure as a regulatory instrument, recognises its limitations, and outline some remaining public policy issues. Keywords: Information disclosure, Regulation. E26: PUBLIC H E A L T H 232O68 (E26) The Evolution of Health Insurance in the United States Compton R.E., Schlackman N., The Geneva Papers on Risk and Insurance, Issues and Practice, 23, No. 86, 1998 The authors provide an overview of the continuing evolution in the U.S. health insurance market, the growing dominance of managed care and the many ways in which managed care can and does enhance the quality of care while controlling costs. Keywords: Health insurance, managed care. E40: BUSINESS E C O N O M I C S , G E N E R A L AND MISCELLANEOUS
232069 (E40, B50) Asymmetric Information, Moral Hazard and the
Abstract and Reviews
Insurance of Legal Expenses Bowles R., Rickmann N., The Geneva Papaers on Risk and Insurance, Issues and Practice, 23, No. 87, April 1998 The purpose of this paper is to make a comparison between the private and social insurance of legal expenses in the UK, and to relate developments in these two sectors with analytical and policy issues arising in oher spheres in which professional services are delivered via a mixture of private and social insurance institutions. The authors show that parallels with the provision of health care in the US, and recently in the UK, can illuminate some of the issues facing private and social insurers alike. The authors argue also that the UK government's proposal to move to a system of "bulk contracts" for the provision of publicly subsidised legal service can be interpreted as an effort to counter the significant agency problems arising within the social insurer-private provides setting of the present Legal Aid system. Keywords: Insurance of legal expenses, Moral hazard. 232070 (E40, B52)
The Corporate Demand for Insurance: A Strategic Perspective Ashby S., Diacon S.R., The Geneva Papaers on Risk and Insurance, Issues and Practice, 23, No. 86, 1998 The purpose of this paper is to discuss the possibility that decisions on corporate insurance, purchases may have a strategic dimension. The conventional literature has focused on the ability of insurance to add value to the firm by limiting the impact of risk on risk averse stakeholders or reducing the cost of such risk. The key argument in this paper is that, under certain circumstances, the corporate demand for insurance may be motivated by a company's strategic decisions on output and price risk. Keywords: Corporations, Decisions. E43: RISK MANAGEMENT 232071 (E43, B50)
Long Tail (Liability) Risks and Claims Made Policies Spier J., The Geneva Papaers on Risk and Insurance, Issues and Practice, 23, No. 87, April 1998 Insurers are sounding the alarm even more. They express serious concern about the trends in tort liability law (the advancing of strict liability), the increasing claims consciousness, the skyrocketing claims, the growing tittle elapsing between the moment where the damage causing event takes place, the occurrence of the damage and the claim is brought and the decreasing predictability of the future.
199
Claims made-policies are often deemed to be the only solution to keep the floodgates shut. However, such policies incur fierce criticism by legislators, courts and doctrine. This begs the most intriguing question should claims made-policies be damned to hell. It is possible to find a compromise between the interests of insurers and insured (or victims)? And, should we strive for such a compromise? Kevwords: Liabili~ insurance, Long tail risks. 232072 (E43, B50)
Insuring the Uninsurable? The Appeal of the Circumstances Clause Schoorens G., Van Schoubroeck C., The Geneva Papaers on Risk and Insurance, Issues and Practice, 23, No. 87, April 1998 Liability insurance provides coverage for liability incurred by the insured within the period of coverage. In many cases, it is obvious whether liability was incurred within or outside this period. In motor vehicle liability for example, negligent driving, collision and claim by the victim generally take place within a period of hours, days or weeks. Other liabilities on the other hand take much more time to develop. Therefore, they are called "long tail" liabilities. Mostly quoted in this category are liabilities for detective products, environmental damage, malpractice and E & O. From the initial incident leading to exposure to damage, over the first signs of such damage until the latent manifestation of loss in all its aspects, to the filing of the claims by the victim and the sentence of the court, many years or even decades can elapse. Because of this, assigning a specific date to the moment when liability is established becomes difficult and all the more crucial. For it is quite possible that during this process of establishing liability, the insured has switched insurers once or even more, each of which has given coverage during only a part of this development process. Which insurer will in that case be liable to indemnity the victim? Keywords: Long tail risks, UninsurabiliD,. 232073 (E43, B50)
Comments on the Appeal of the Circumstances Clause and the Uninsurability of Long Tail Risks Wagner G., The Geneva Papaers on Risk and Insurance, Issues and Practice, 23, No. 87, April 1998 The author present a succinct and interesting analysis of the actuarial problems posed by long tail liabilities. Keywords: Long tail risks, Uninsurabili~.