Mortality risk perceptions: A Bayesian reassessment

Abstracts and Reviews In France, on the contrary, the 1982 Act introducing the “cat ‘nat”-system and codified in section L and A 125 of the insurance code, gave up most free-market principles to create a compulsory extended coverage of natural disasters in all non-compulsory property insurance contracts. The system is run by private insurers but both the premium rate and the occurrence of a natural catastrophe are set by the Government. Insurers only collect the premiums and pay the losses, according to the provisions of the insurance contract. So far the system has proved to be profitable but was nonetheless secured both by allowing insurers to set up free of tax a certain amount of reserves and providing them with an extensive Stateguaranteed reinsurance cover. The weak point of this mixed system is loss prevention. Several attempts have been started recently to combine solidarity and private responsibility. Further changes towards somewhat more risk-based premiums should not be excluded. The comparison between both countries shows that, as far as natural catastrophes are concerned, neither an entirely free market nor a strongly regulated one can provide sufftcient coverage at reasonable costs. In fact, “the question is not whether natural catastrophes are insurable or not, but who is going to pay for them”, as Jack F. Wever from the Natural Disaster Coalition, Washington D.C., puts it accurately. When certain items prove to be uninsurable, in particular due to their location, new ways of providing adequate coverage have to be explored. However, the introduction of natural catastrophes’ coverage packages is not always possible for both economic and scientific reasons non-flood-insured may not be willing to subsidise flood-prone insured, if they are not themselves exposed to other natural risks. Solution to this can involve agreements between insurers, coinsurance or reinsurance pools, all subject to restrictions pursuant to European and internal competition law rules. Less dubious in respect of competition law are solutions using reinsurance techniques, including financial reinsurance but their cost and thus the financial capacities of both sides involved have to be taken into account. Ultimately, the first question to solve is whether a transfer of risk - whether to an insurer or to the State - is desirable or not. The answer depends on national peculiarities, as insurance typically is a product of national values. These values, as well as the different situations on the relevant domestic markets, determine to which extent the transfer has to take place and in which form. The choice of a particular solution is thus difficult and of political nature, but has in all to be a well-informed

one, this is not the

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case, the only alternative seen is between free market and compulsory insurance. Keywords: Riverjloodq French legislation.

E: INSURANCE

ECONOMICS

EIO: INSURANCE BELATED MATHEMATICAL ECONOMICS,GENERAL AND MISCELLANEOUS 222027 (ElO) Individuals’ Estimates of the Risks of Death: Part I A Reassessment of the Previous Evidence Benjamin D.K., Dougan W.P., Journal of Risk and Uncertainty, Volume IS, Number 2, 1997 It is widely argued that individuals have biased perception of health and safety risks. A reconsideration of the best-known evidence suggests that this view is the erroneous result of a failure to consider the implications of scarce information. The findings imply that the hypothesis that people make unbiased estimates of hazard rates fails to be rejected by the very data that were initially used to reject it. Thus, they are able to reconcile the alleged existence of widespread bias to risk perception with other findings that such bias is less apparent in the case of job-related hazards. The seeming bias in estimating population-average death rates and the lack of such bias in assessing job risks are tow manifestations of the same behaviour, which is the optimal acquisition of costly information. Keyworcis: Risk perception, Health and safety hazard, Rational expectations. 222028 (ElO) Mortality Risk Perceptions: A Bayesian Reassessment Hakes J.H., Viscusi W., Journal of Risk and Uncertainty, Volume 15, Number 2, 1997, 135-150. This paper used a Bayesian learning model to assess the respective influence of different risk measurements of mortality risk-perceptions. People form risk beliefs using several sources of information, including the actual population mean death risk level, the discounted lost life expectancy, and the age-specific hazard rate considered by Benjamin and Dougan (1997). The appropriate criterion for judging the validity of risk perception is not the perfect information case, but rather whether people form their risk beliefs in a rational manner given a world of costly and limited risk information. Although the statistical results support the overall

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Abstracts and Reviews

conclusion that the learning process is rational, the character of the learning process differs depending on the risk level. Risk-related variables are much better predictors of large risks than of small risks, which reflects the role of information costs and the benefits of learning about large risks. Keywords: Risk perception, Bayesian, Mortality, Learning. 222029 (ElO) Saving Lives in the Present Versus Saving Lives in the Future - Is there a framing Effect? Johannesson M., Johansson, Journal of Risk and Uncertainty, Volume 15, Number 2, 1997, 167-I 76. To estimate the discount rate for lives saved in the future a number of studies have been carried out on the trade-off between saving lives in the future. A telephone survey is administered to about 1700 individuals to test if the framing of the question affects the estimated trade-off. In one sample the question is framed as saving 100 lives today versus saving x future lives and in one sample the question is framed as saving 100 future lives versus saving y lives today. The results shows that the framing has a major impact on the trade-off. Keywords: Discount rate, Future health benejts, Lives saved, Framing. 222030 (ElO) Towards a General Theory of Insurance Production Eszler E., Zeitschrtft jir die Gesamte Versicherungswissenschaft, 199 7, I-36. Traditional concepts of insurance production appear to be relative insular as for instance, special historical production factors like reinsurance are integrated but recently developed risk handling instruments like insurance futures are not. This article therefore, aims at developing a general and not historically relative theory in an idealistic and axiomatic way restricted to the risk process. The product (output) of insurance production is defined of probability-distributed loss availability as compensation for the insured. This product is produced by the production factor (input) “availability of probability-distributed loss compensation resources” in its two forms as potential factor and consumable factor. When the insured event occurs tbe potential factor is transferred into the consumable factor (actual loss compensation resources) to provide the insured with actual loss compensations. The production factor as potential factor (“super factor”)

can be subdivided into “sub:factors” which can be character&d in general by the probability distribution of loss compensation resources, by the relation of sub-factor to insured probability distributions of losses, and the time of availability of actual compensation resources. Between the sub-potential factors substitutional relations may be possible. It is shown that production factors like reinsurance as well as insurance fbtures, premiums, and insurance portfolios can be integrated into this general theory of insurance production. Keywora!s: Insurance production, Insurance theory. 222031 (ElO) Insurance Broker as an Element of the Insurance Product Kromschrgder B., Zeitschrtfi fir die Gesamte Versicherungswissenschaft, 1997, 59-80. This article intents an analysis of insurance broker services. It characterises and systematically describes the output of the insurance broker firm. Furthermore, it discusses an incomplete information approach used in recent publications to explain and analyze insurance broker services. Two remarks concerning organisational and pricing aspects of the insurance broker business complete this paper. KeyworaY Insurance brokers, Pricing. 222032 (ElO) Insurance Market - Asymmetric Information and Asymmetric Regulation Wein T., Zeitschrifr fiir die Gesamte Versicherungswissenschaft, 1997, 103-130. On the one hand, many state regulations are nowadays abolished in the German insurance market. On the other hand, the competition rules have been intensified. In literature many arguments exist against successful deregulation of the insurance market (so-called “peculiarity doctrine”). Analysing the peculiarity doctrine two “market failures” are decisive asymmetric information and stochastic economies of scale, especially the law of large numbers. Many empirical researches show that the arguments in favour of stochastic economies of scale and, therefore, the existence of natural monopolies cannot be confirmed. Only in very special models does the problem of uniformed insurers lead to market failure. Market failure caused by the uninformed insured is much more likely. The author’s own empirical research shows that information problems on the demand side in the “new” German market have increased since