The Geneva Papers on Risk and Insurance - Issues and Practice

If health care expenditure for the elderly grows faster than for younger people, the expenditure profiles become “steeper” – we call that “steeping”. Three instruments for measuring “steeping” are presented: (1) trend of the relation between per capita expenditure of the old and the young; (2) comparing the linear slopes of per capita expenditure in age groups; (3) trend in parameters of nonlinear modelling of expenditure profiles. Using data of the largest German private health insurer over a period of 18 years, “steeping” could be observed by all three methods in most examined insurance plans. There are some hints that steeping also occurs in Germany's social health insurance system. The impact of steeping on the sustainability of the health system is discussed. Consequences for the calculation methods in a capital-funded health insurance system and for the implicit inter-generational contract within a pay-as-you-go financed social health insurance system are analysed. The link between “steeping” and the topic of the “red herring” discussion is elaborated.

Studying the factors that influence commercial health insurance consumption is essential in insurance economics. Family ties are important factors that affect consumer behaviour, especially in Eastern countries such as China. We construct an index to measure family ties and examine their effect on commercial health insurance consumption. We also use an instrumental variable approach to address endogeneity and apply a complementary log–log regression to deal with rare-event bias. We find that family ties have significantly positive impacts on individuals’ and families’ commercial health insurance consumption. The effect of family ties on commercial health insurance consumption is greater in individuals/families with higher income levels, those in eastern provinces, and those who are older.

This paper describes the results of a web-based experiment that uses respondents’ stated preferences for purchasing insurance for low-probability, high-consequence events where the probability of a loss and its consequences are stable over time. We contrast the predictions of a model of insurance choice based on expected utility [E(U)] maximisation with those of an alternative behavioural model. The majority of subjects reported insurance purchasing behaviour consistent with expected utility theory; however, a sizeable number of uninsured individuals decided to purchase insurance after learning that they had suffered a loss whereby they responded that their prior choice to be uninsured made them unhappy. In this sense, the study shows that a loss coupled with self-reported emotions linked to the loss is likely to play an important role in convincing some uninsured persons to buy coverage. In contrast, insured individuals who did not suffer a loss rarely dropped coverage.

Customer satisfaction management is increasing in importance within the insurance industry. In particular, to define a customer-oriented strategy, installing digital applications based on technologies, e.g. including artificial intelligence or cloud computing, ranks among the major strategic challenges. Against this background, the aim of this paper is to take an integrated perspective on managing customer satisfaction and the digital transformation. Towards this end, we identify and assess a set of digital applications, as a result of a comprehensive review of 106 academic papers and publications of the industry and supervisory authorities. We illustrate the opportunities to increase customer satisfaction and emphasise their impact on insurers at four major customer touch points: contract conclusion, contract modifications, the event of damage and further contacts. Our results are strategic measures to strengthen the position for sales and marketing, to simplify standard processes and to increase efficiency and interaction with the customer.

Welfare state arrangements not only mitigate income risk, they also create new types of risks; we may call them “policy-induced risks”. In some cases, market risk is replaced by the risk of changes in politically determined rules, “rule instability” for short. In other cases, welfare state arrangements change the character of market risk, and may even increase it. I call this “policy-induced market risk”

In the U.K., home contents insurance is widely available, with a reduction in the number of “traditional” insurance companies offering cover being offset by a growth in the availability through “non-traditional” providers such as supermarkets, motoring organizations and even energy providers. Research suggests that while around 80 per cent of all households are covered by home contents insurance, only around 50 per cent of people living in rented or local authority housing insure their contents. The low uptake is undesirable for two reasons. Firstly, financial exclusion is a phenomenon whereby individuals or sectors of society are deliberately, or effectively, denied access to financial services products, including home insurance, and it is commonly government policy to reduce such exclusion. Secondly, possession of contents insurance by householders minimizes the possibility that after a catastrophic loss such as flooding, uninsured persons will seek emergency assistance and temporary housing at the expense of their local authority. Studies and government reports exist that shed light upon the reasons behind the low purchase of conventionally marketed insurance. Special schemes exist to encourage purchase of insurance by enabling home contents insurance for local authority tenants to be paid for along with rent. Governments support such schemes. There appears to be little published research to indicate the extent to which such schemes are used by tenants. We survey local authorities in Scotland to determine the availability of “insurance with rent” schemes and their take-up rate by tenants. We find that many schemes exist, providing average market cover at typically average or lower cost and that there is no evidence of highly selective underwriting and pricing. Despite this easy availability of competitively priced, good policy cover, we find that the take-up rates by tenants are low. We consider reasons why apparently effective insurance products are not more popular. We conclude that local authorities and government need to promote the schemes with greater vigour.