Journals

Journal of Risk and Insurance

The Journal of Risk and Insurance (JRI) publishes theoretical and empirical research on the topics of insurance economics and risk management. Research in the JRI informs practice, policy-making, and regulation in insurance markets as well as corporate and household risk management. It is currently indexed by the American Economic Association’s Economic Literature Index, RePEc, the Social Sciences Citation Index, and others. Issues of the JRI, from volume one to volume 82 (2015), are available online through JSTOR. Recent issues of the JRI are available through Wiley Online Library. A subscription to the Journal of Risk and Insurance is one of the many benefits of ARIA Membership.

Journal of Risk and Insurance

Early View

An examination of life insurance policy surrender and loan activity

Extant literature has explored policyowner decision‐making as it relates to both life insurance policy surrender and borrowing activity. However, researchers have not yet examined why individuals may select one option over the other. In this study, we investigate common hypotheses related to policy surrender and loan activity using approaches which allow us to examine the two options jointly while also accounting for the multidimensional nature of the decision‐making process. We offer evidence consistent with the emergency fund, alternative funds, and policy replacement hypotheses as they relate to the decision to either surrender a policy or take out a policy loan and find that differential effects exist between the two options. In particular, our findings suggest that households tend to surrender their cash value policies when longer‐term financial needs arise while temporary needs are more likely addressed with loans which keep the policy in force, each consistent with rational household decision‐making.

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Journal of Risk and Insurance

Early View

The efficiency of voluntary risk classification in insurance markets

It has been established that categorical discrimination based on observable characteristics such as gender, age, or ethnicity enhances efficiency. We consider a different form of risk classification when there exists a costless yet imperfectly informative test of risk type, with the test outcome unknown to the agents ex ante. We show that a voluntary risk classification in which agents are given the option to take the test always increases efficiency compared with no risk classification. Moreover, voluntary risk classification also Pareto dominates a regime of compulsory risk classification in which all agents are required to take the test.

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Journal of Risk and Insurance

Early View

Simultaneous borrowing of information across space and time for pricing insurance contracts: An application to rating crop insurance policies

Changing climate and technology can often lead to nonstationary losses across both time and space for a variety of insurance lines including property, catastrophe, health, and life. As a result, naive estimation of premium rates using past losses will tend to be biased. We present three successively flexible data‐driven methodologies to nonparametrically smooth across both space and time simultaneously, thereby appropriately incorporating possibly nonidentically distributed data into the rating process. We apply these methodologies in estimating U.S. crop insurance premium rates. Crop insurance, with global premiums totaling $4.1 trillion in 2018, is an interesting application as losses exhibit both temporal and spatial nonstationarity. We find significant borrowing of information across both time and space. We also find all three methodologies improve both the stability and accuracy of crop insurance premium rates. The proposed methods may be of relevance for other lines of insurance characterized by spatial and/or temporal nonstationary losses.

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Risk Management & Insurance Review

Risk Management and Insurance Review publishes high-quality applied research, well-reasoned opinion and discussion in the field of risk and insurance. Additionally, the Review provides a repository of high-caliber model lectures in risk and insurance, along with articles discussing and evaluating instructional techniques. A subscription to the Risk Management and Insurance Review is one of the many benefits of ARIA Membership.

Risk Management & Insurance Review

Volume 23, Issue 2

Auditor quality, audit fees, organizational structure, and risk taking in the US life insurance industry

Using a system of simultaneous equations, this study examines the relation among external audit monitoring, in the US life insurance industry. We find insurers with higher leverage risk and surplus risk are more likely to use Big‐4 auditors and to pay higher fees. In return, insurers hiring Big‐4 auditors and paying higher audit fees have lower leverage risk and surplus risk. Second, the results suggest that mutual life insurers have a higher leverage risk and surplus risk than stock life insurers. This evidence is in contrast to that for property–liability insurance companies. Third, we find insurers are less likely to hire Big‐4 auditors and to pay higher audit fees after implementation of the Sarbanes–Oxley Act (SOX). Finally, life insurers with Big‐4 auditors or paying higher audit fees are more likely to take lower risks after the implementation of SOX.

 

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Risk Management & Insurance Review

Volume 23, Issue 1

The future of mobility and its impact on the automobile insurance industry

Among the trends impacting most industries are new mobility concepts, digitalization, urbanization, rising environmental awareness, and demographic change. The automobile insurance industry, in particular, is strongly affected by new mobility concepts, including autonomous, shared, and electric vehicles, which are expected to increasingly impact the risk exposure and insurance demand in the future. Identifying and assessing the resulting risk and opportunity landscape from these trends thus becomes a major strategic challenge for insurers. The aim of this paper is to analyze the trends that impact the field of mobility and thus automobile insurers. Based on this, we derive a set of strategic response measures for insurers to enable them to be prepared for the future of mobility.

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Risk Management & Insurance Review

Volume 22, Issue 4

Regulation and the connectedness of insurers to the banking sector: International evidence

Using variation across countries and time in the degree to which regulations restrict banks and insurers from engaging in the same activities, we find that property/liability insurers’ connectedness to the banking sector declines when regulatory restrictions increase, but life insurers’ connectedness to banks does not. The results suggest that the connectedness between life insurers and banks is largely due to these institutions sharing common underlying economic and financial risk factors that exist even when regulation restricts these institutions from engaging in each other’s activities.

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