Volume 9, Issue 1 -

This study investigates the difficulties encountered by consumers in forming insurance decisions when using self-service technology (SST) channels, such as electronic insurance. Rasch measurement model is applied. This model employs the expectation disconfirmation theory to categorize and rank the order of importance of latent utilitarian and hedonic insurance purchase motives. Consumers find that electronic insurance has high risks and high premiums with respect to utilitarian motives but lacks information and performs unsatisfactorily in terms of hedonic motives. Nevertheless, electronic insurance is preferred for the convenience brought by SST channels, and because it provides greater discounts and offers product–channel matching through self-consultation in the absence of agents. Being middle-aged and having a high income are factors that significantly influence electronic insurance purchases.

The purpose of this study is to investigate whether private insurance is a normal good by examining the effects of public insurance. Also, this study investigates how the amount of public insurance premium affects to the private insurance demand. The main results of this study are as follows. First, the private insurance has a tendency to be a normal good whether the public insurance benefit is fixed to household income. Second, the degree of loading of public insurance and average probability of accident taking place, which are the components of public insurance premium, relates to the private insurance demand, but whether this relation is positive or negative is indeterminate unless private insurance is actuarially fair.

This research investigates the effects of the over-the-counter (OTC) sales at banks on individual annuity markets in Japan. The ban on OTC sales of individual annuities at financial institutions was rescinded in October 2002. Deregulation is considered to have expanded the market because it began growing in FY 2001. Life insurance companies also announced that the sales of insurance policies through banks are affecting their profits. However, statistics on sales results aggregated by distribution channel have not yet been released. Thus, my empirical analysis investigates the relationships between the amount of new contracts for individual annuities provided by insurance firms and several explanatory variables, including the number of bank branches in a region, the Herfindahl index calculated using the amount of individual annuity contracts in force, rate of the elderly, prefectural income, labor force participation rate for older men, amounts outstanding of bank deposits, share of owned homes to total dwellings, amount of life insurance policies in force, and male life expectancy. The results of a panel-data analysis over a 10-year period, and including 47 prefectures and 14 major insurance firms, indicate that the number of bank branches is positively related to the amount of new contracts for several insurance companies.

We analyze the risk and profitability of reverse mortgages with lump-sum or income stream payments from the lender’s perspective. Reverse mortgage cash flows and loan balances are modeled in a multi-period stochastic framework that allows for house price risk, interest rate risk and risk of delayed loan termination. A vector autoregressive (VAR) model is used to simulate economic scenarios and to derive stochastic discount factors for pricing the no negative equity guarantee embedded in reverse mortgage contracts. Our results show that lump-sum reverse mortgages are more profitable and require less risk-based capital than income stream reverse mortgages, which explains why this product design dominates in most markets. The loan-to-value ratio, the borrower’s age, mortality improvements and the lender’s financing structure are shown to be important drivers of the profitability and riskiness of reverse mortgages, but changes in these parameters do not change the main conclusions.

Asset liability management is often employed for managing the risks associated with defined benefits. Liability Driven Investment is a recent phenomenon in financial circles, promising a coherent framework for achieving this aim. It has been focused on managing interest rate risks by appropriate debt strategies. However the formulation of debt strategies needs to take explicit account of one characteristic that affects most liabilities, namely inflation. This factor generates as much risk as interest rates; moreover it is intimately related to them. We examine this issue in depth, and consider the economic relationships between interest rates and inflation. This is conducted in the light of the Fisher Hypothesis . We show that this analysis has significant implications for nominal debt strategies.

China has been experiencing rapid development in its insurance market in recent years, with its reinsurance market also in a developing stage. Previous theoretical work using a game theory approach suggests that the appropriate number of companies in the insurance market should be the square root of the number of insurers (index = 0.5). To verify the validity of this square-root rule, we conduct an analysis using data over a period. To examine this relationship between the number of insurers and the number of reinsurers, we perform regression analyses using data from the Organization for Economic Cooperation and Development (OECD). We find that the level of the index fluctuates around an index level of 0.4, instead of 0.5, the optimal value by theory. We also observe that this index level fluctuation behaves similar to the price of risk and the property–liability combined ratio. In our analysis, we then replace the number of reinsurers and number of insurers by ceded premium and net premium, respectively, and find similar results. By comparing and calculating these theoretical relationships, we present two formulas of the average size of the reinsurance market with our interpretations on the gap between the theory and the data. In addition, we analyze the Chinese reinsurance market to offer more evidence of our interpretation.