Insurance Research Group

NBER Reporter, Spring 1999 | Go to article overview

Insurance Research Group


The NBER's Insurance Research Group held a meeting in Cambridge on February 12-13. Kenneth A. Froot, NBER and Harvard University, Director of the Research Group, and Howard C. Kunreuther, NBER and University of Pennsylvania, organized the meeting and selected the following papers for presentation:

Brad Herring and Mark Pauly, University of Pennsylvania, "Efficient Employer Choices in Multi-Plan Offerings with Adverse Selection: An MSA Example"

Discussant: Richard J. Zeckhauser, NBER and Harvard University

Christopher K. Hsee, University of Chicago, and Howard C. Kunreuther, "Insurance Purchase as Expressions of Feelings"

Discussant: Paul Slovic, Decision Research

David Rode, Baruch Fischhoff, and Paul Fischbeck, Carnegie-Mellon University, "Catastrophic Risk and Securities Design"

Discussant: Steven Goldberg, USAA Property and Casualty Insurance Group

Adam B. Jaffe, NBER and Brandeis University, and Thomas Russell, Santa Clara University, "Financial Markets and Financial Intermediaries: The Case of Catastrophic Insurance"

Discussant: Kenneth A. Froot

Robert W. Klein, Georgia State University, and Paul R. Kleindorfer, University of Pennsylvania, "The Supply of Catastrophe Insurance under Regulatory Constraints"

Discussant: James Ament, State Farm Fire and Casualty Co.

Neil Doherty, University of Pennsylvania, "Hedging, Compensation, and Earnings Surprises"

Discussant: Peter A. Diamond, NBER and MIT

David A. Moss, Harvard Business School, "When All Else Fails: Government as the Ultimate Risk Manager"

Discussant: John Major, Guy Carpenter & Company, Inc.

Anne Beatty, Pennsylvania State University, Anne Gron, Northwestern University, and Bjorn Jorgerisen, Harvard University, "Corporate Risk Management and Product Liability Insurance"

Discussant: Jeremy C. Stein, NBER and MIT

Stewart C. Myers, NBER and MIT, and A. Lawrence Kolbe, The Brattle Group, "Taxing Mutual and Stock Life Insurance Companies"

Discussant: David F. Bradford, NBER and Princeton University

Allen Berger, Federal Reserve Board, David Cummins, University of Pennsylvania, Mary Weiss, Temple University, and Hongmin Zi, Sejong University, "Economies of Scope in Financial Services: An Analysis of the U.S. Insurance Industry"

Discussant: Gordon Stewart, Insurance Information Institute

Herring and Pauly outline a feasible employee premium contribution policy that would reduce the inefficiency associated with adverse selection when a limited-coverage insurance policy is offered alongside a more generous policy. The authors define "efficient premium contribution" and show that it leads to an efficient allocation across plans of persons who differ by risk, but that it may also redistribute against higher risks. The authors also simulate the additional option of a catastrophic health plan (CHP) accompanied by a medical savings account (MSA). The efficiency gains from adding the MSA/CHP option are positive but small; the adverse consequences for high risks under an efficient employee premium are also small.

Hsee and Kunreuther study individual insurance behavior and document an "affection effect" in the decision to purchase coverage and then to invest the time and energy in making an insurance claim after suffering a loss. People who feel more affection toward an article they are shipping are more willing to buy an insurance policy covering damage to the item than others, holding the amount of coverage and all other normatively relevant factors constant. If the article is damaged, those with greater affection for it are also more willing to go through the trouble of collecting the compensation. The authors explain these findings via a "consolation hypothesis": that people perceive insurance compensation not just as a monetary payment but as a token of consolation. …

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