Volume 1, Issue 2

Along with competence, ethical behavior is a key component of professionalism. In carrying out their duties, all life insurance professionals encounter a variety of ethical dilemmas as well as a number of factors that can present challenges to their efforts to resolve these dilemmas in an ethical manner. By comparing the ethical environments of the U.S. and South Korean life insurance industries, this paper examines how significant differences in culture can affect the key ethical issues and the hindrances to ethical behavior faced by life insurance professionals working in the two countries.

Recent extreme events have significantly raised the question of the role of public and private sectors in providing adequate financial protection to victims. Developing publicprivate insurance programs could constitute one of the most appealing ways to solve the problem of financing the consequences of those large-scale catastrophes. However, catastrophic risks present very specific characteristics which challenge any traditional economic approaches to analyzing them. Further, the government may have better information about the risk than insurers (e.g., national security). Currently, little has been done in the economic literature to better understand how this assumption impacts on how risks are shared between all stakeholders in such partnerships.This paper analyzes policy issues related to risk/information sharing between insurers and a dedicated State-backed governmental reinsurer, who are part of a national partnership program. The government develops a mandatory coverage against catastrophic risks and decides the level of premiums levied against the insureds. Using a game-theoretical approach, we show that a government can act to induce private insurers in the country to participate in the partnership instead of leaving the market. By modulating its premium policy, the government can also led them to adopt two different strategies: (1) behave as a simple financial intermediary between the insured and the public reinsurer so that the latter supports the largest portion of the risks or (2) conserve the largest part of risks to benefit from market conditions created by the government seeking to avoid its intervention ex post to bail out the public reinsurer. The paper also discusses the impacts of government information-sharing strategies on the game equilibrium. Illustrations are provided for natural hazards and terrorism risk.

This paper proposes a discrete dynamic programming model to maintain pension contribution in a stable level. By assuming an intertemporal stable contribution rate, we derive an algorithm to calculate the optimal contribution that requires less exogenous information and produces more stable results. Our simulation results further confirm that our model helps pension fund managers to make more stable contributions and further reduce the contribution risk for the defined benefit pension fund than the traditional algorithms do.

The theory of information asymmetry has explained the coexistence of stock and mutual companies in the insurance market. However, there is discrepancy between the theory and empirical findings. This paper proposes a simple theory to fill the gap between the theory and empirical findings. Our approach is to modify the theory of information asymmetry by incorporating limited competition. Using the Evolutionary Stable Equilibrium, we show that the coexistence or existence of mutuals only (stocks only, resp.) can be an evolutionary stable outcome even in a high risk line (a low risk line). We find that two additional factors are important in explaining the results: (i) the relative size of advantage of each organizational form and (ii) history (or the starting population of companies).

This paper aims to investigate the effects of bancassurance in Korea and to find the best bancassurance partners in terms of cost, revenue, and profit efficiency. Thick frontier and scenario analyses are used to measure the efficiency change. We find that foreign and small- and medium-sized insurers can gain cost and profit efficiency through bancassurance, but lose revenue efficiency. Large insurers can realize cost efficiency, but lose revenue and profit efficiency. Banks can realize revenue and profit efficiency, but lose cost efficiency. For banks, large insurers are the best bancassurance partners due to product relatedness and good reputation.