Table of Contents Alert: The Journal of Environment & Development 21 (2)

See below for some of the articles that was published in the latest Special Issue:  Policy Instruments for Sustainable Development at Rio +20 in The Journal of Environment & Development 21 (2)

The Promise and Problems of Pricing Carbon: Theory and Experience
Joseph E. Aldy and Robert N. Stavins
Abstract: Because of the global commons nature of climate change, international cooperation among nations will likely be necessary for meaningful action at the global level. At the same time, it will inevitably be up to the actions of sovereign nations to put in place policies that bring about meaningful reductions in the emissions of greenhouse gases. Due to the ubiquity and diversity of emissions of greenhouse gases in most economies, as well as the variation in abatement costs among individual sources, conventional environmental policy approaches, such as uniform technology and performance standards, are unlikely to be sufficient to the task. Therefore, attention has increasingly turned to market-based instruments in the form of carbon-pricing mechanisms. We examine the opportunities and challenges associated with the major options for carbon pricing—carbon taxes, cap-and-trade, emission reduction credits, clean energy standards, and fossil fuel subsidy reductions—and provide a review of the experiences, drawn primarily from developed countries, in implementing these instruments. Our summary of relevant theory and survey of experience from industrialized nations may be helpful to those who wish to examine the potential applicability of carbon pricing in the context of developing countries.

Environmental Policy and Political Realities: Fisheries Management and Job Creation in the Pacific Islands
Joshua Graff Zivin and Maria Damon
Abstract: Effective environmental policymaking requires an understanding of how environmental goals interact with other political goals. This article analyzes development strategies in the PICT’s, where policymakers aim to leverage tuna resources into sustainable economic development and job creation. The authors develop a model that analyzes costs and benefits of different development strategies, with a focus on job creation and local socioeconomic factors that drive optimal policy mixes across PICTs. The analysis demonstrates that investment in fisheries management can effectively encourage economic development and create employment opportunities, and compare this strategy to others such as selling access permits and investing in processing capacity. While many benefits of fisheries management are widely recognized, its ability to create high-quality employment opportunities is often overlooked. For many PICTs, this may represent the lowest cost strategy for jobs creation and, coupled with selling fishery access to foreign vessels, can form a strong basis for economic development plans.

The Role of Microinsurance as a Safety Net Against Environmental Risks in Bangladesh
Sonia Akter
Abstract: The Intergovernmental Panel on Climate Change (IPCC) identifies Bangladesh as one of the countries that will be hardest hit by the anticipated effects of climate change. The poorest people are the most vulnerable, as they do not have sufficient means to cope with environmental risks. In the absence of effective safety nets, poor people become trapped in chronic poverty due to the recurrent damage caused by natural disasters. Recently, there has been growing optimism among policy makers and practitioners about the role of microinsurance as a safety net against weather risks for the poorest and most vulnerable people of Bangladesh. This article sheds light on this issue by synthesizing the findings of half a decade of research on the prospects of weather microinsurance in Bangladesh. Three key conclusions are drawn from the synthesis. First, the market for a standard, stand-alone weather microinsurance in Bangladesh is characterized by low demand, poor governance, and lack of prospects for commercial viability. Second, although the index-based flood insurance model has theoretical appeal (i.e., no moral hazard or adverse selection and low transaction cost), high economic cost might be associated with its highly complex practical implementation. Finally, the current (un)regulatory arrangement of microinsurance supply in Bangladesh, which does not guarantee accountability and protect clients’ rights, is likely to increase rather than decrease poor people’s vulnerability. The study makes two key recommendations: (1) exploring options for nontraditional insurance models (e.g., group-based and ex-post premium-based models), and (2) considering regulatory reforms to ensure good governance and to foster market efficiency through low-cost delivery and product innovation.

To download articles with subscription click here

Table of Contents Alert: The Geneva Papers on Risk and Insurance: Issues and Practice 37 (1)

Editorial 

Moving Insurance
Patrick Liedtke

Original Articles 

Who Responds to Tax Reforms? Evidence from the Life Insurance Market
Carolin Hecht and Katja Hanewald

Abstract: We exploit the natural experiment of the 2005 income tax reform in Germany to study the effects of tax incentives on consumer behaviour in life insurance markets. Our empirical analysis of sociodemographic, economic and psychological household characteristics elicited in the German SAVE study shows that two very different consumer groups buy (endowment) life insurance before and after the tax reform. We find that education plays a central role in reactions to the modified tax environment. Our stylised characterisation of “arbitrageur” and “straggler” buyers will assist both life insurance firms and regulatory authorities in designing effective policies.

Non-Risk Price Discrimination in Insurance: Market Outcomes and Public Policy
R Guy Thomas

Abstract: This paper considers price discrimination in insurance, defined as systematic price variations based on individual customer data but unrelated to those customers’ expected losses or other marginal costs (sometimes characterised as “price optimisation”). An analysis is given of one type of price discrimination, “inertia pricing”, where renewal prices are higher than prices for risk-equivalent new customers. The analysis suggests that the practice intensifies competition, leading to lower aggregate industry profits; customers in aggregate pay lower prices, but not all customers are better off; and the high level of switching between insurers is inefficient for society as a whole. Other forms of price discrimination may be more likely to increase aggregate industry profits. Some public policy issues relating to price discrimination in insurance are outlined, and possible policy responses by regulators are considered. It is suggested that competition will tend to lead to increased price discrimination over time, and that this may undermine public acceptance of traditional justifications for risk-related pricing.

Regulation and Reform of Rating Agencies in the European Union: An Insurance Industry Perspective
Anja Theis and Michael Wolgast

Abstract: This article investigates the current discussion on the regulatory framework for credit rating agencies (CRAs) from the perspective of the insurance industry, focusing on the European Union. It becomes apparent that the new European system of regulation and supervision of CRAs conforms well to general principles of economic theory and can be expected to resolve many issues of concern. In contrast, some of the additional policy options currently discussed in Europe could involve substantial costs and risks for market participants and the financial system without contributing further to the objectives of CRA reform.

Insurability in Microinsurance Markets: An Analysis of Problems and Potential Solutions
Christian Biener and Martin Eling

Abstract: This paper provides a comprehensive analysis of the insurability of risks in microinsurance markets. Our aim is to enhance the understanding of impediments to and facilitators of microinsurance from an economic perspective and outline potential solutions. The motivation for conducting this analysis arises from two important aspects. (1) Despite strong growth of microinsurance markets in recent years, more than 90 per cent of the poor population in developing countries have limited or no access to insurance. (2) Industry practitioners frequently highlight problems in the insurability of risks that hinder the development of microinsurance. We review 131 papers and find that the most severe problems stem from insufficient resources for risk evaluation, small size of insurance groups, information asymmetries and the size of the insurance premium. On the basis of the analysis, we discuss a number of potential solutions such as, for example, a cooperative microinsurance architecture.

Governance and Shareholder Response to Chief Risk Officer Appointments
Manu Gupta, Puneet Prakash and Nanda Rangan

Abstract: This study examines the recent, significant growth in the appointments of Chief Risk Officers (CROs), the role of a CRO, and whether such appointments benefit shareholders. We find that the market is more likely to react positively to a CRO appointment for a firm with weak corporate governance. In particular, the lower the proportion of outside directors the greater is the likelihood of a positive market reaction to CRO appointments, suggesting that CRO appointments are associated with better future governance by firms’ shareholders. Finally, firms with higher tax and product risk also experience increases in stock prices when they appoint CROs.

Globalisation and Convergence of International Life Insurance Markets
Chien-Chiang Lee and Chi-Hung Chang

Abstract: Using panel data of 39 countries over the period 1979–2007, this paper is the first to empirically examine the influence of the KOF index of globalisation (overall and its three main sub-indices) on the development and convergence of international life insurance markets by a panel cointegration technique. We find that globalisation has a significant impact on the development of international life insurance markets and on reducing the deviation between individual countries’ life insurance penetration and the world average. Economic and social dimensions exert a similar effect as well, and the effect of economic globalisation is higher, while the effect of political dimension is not significant. In addition, social globalisation plays a dominant role on the interactive influence of different dimensions of globalisation, implying that socio-cultural factors are a latent factor behind economic or political influence. Finally, most countries’ structural breaks coincide with the fast growth wave of international life insurance markets.

ITS Award-Winning Papers

Structure, Principles and Effectiveness of Insurance Regulation in the 21st Century: Insights from Canada
Mary Kelly, Anne Kleffner and Darrell Leadbetter

Abstract: The 2007–2009 financial crisis resulted in failures of many large financial institutions and among the G8 countries, only Canada did not have to provide financial support to distressed financial institutions. We first examine the existing Canadian regulatory architecture in relationship to underlying principles arising from the public theory of regulation. Elements of the Canadian regulatory framework that contributed to the success of the insurance industry in weathering the crisis include the presence of a federal regulator who monitors system-wide issues also ensures consistent solvency standards; investment guidelines that encourage prudent risk-taking; and a holistic approach to insurer monitoring. A comparison of the Canadian experience with that of other jurisdictions highlights the importance of a holistic risk management approach to firm viability, especially in light of the inherent risks arising from complex group structures. A lesson from the crisis is the need for effective ex ante and ex post cross-border and holistic supervision as most distressed institutions belonged to large complex groups operating in multiple regulatory jurisdictions.

Principles for Insurance Regulation: An Evaluation of Current Practices and Potential Reforms
Robert W Klein

Abstract: The recent financial crisis and its cascading effects on the global economy have drawn increased attention to the regulation of financial institutions including insurance companies. While many observers would argue that insurance companies were not significant contributors to the crisis, the role of insurance companies in the financial economy and their potential vulnerability to systemic risk have become matters of considerable interest to policy-makers and regulators. In this context, this paper examines the basic economic principles that should govern the regulation of insurance and employs these principles in assessing current regulatory practices and potential reforms. Specifically, it articulates the basic rationale for insurance regulation, which is the remediation of market failures where regulation can enhance social welfare. In insurance, the principal market failures that warrant regulatory intervention are severe asymmetric information problems and principal-agent conflicts that could lead some insurance companies to incur excessive financial risk and/or engage in abusive market practices that harm consumers. This provides an economic basis for the regulation of insurers’ financial condition and market conduct. At the same time, the regulatory measures that are employed to correct market failures should be efficient and effective. Judged against these principles, the systems for solvency and market conduct regulation in the United States warrant significant improvement. There appears to be little or no justification for regulating insurance rates in competitive markets and the states should move forward with full deregulation of insurance prices. The EU appears to be much farther ahead in terms of implementing best practices in the regulation of insurers’ financial condition under its Solvency II initiative. It is also much closer to the desirable goal of full price deregulation than the United States.

Available with subscription at: http://www.palgrave-journals.com

‘Insurability in Microinsurance Markets: An Analysis of Problems and Potential Solutions’

Abstract: This paper provides a comprehensive analysis of the insurability of risks in microinsurance markets. Our aim is to enhance the understanding of impediments to and facilitators of microinsurance from an economic perspective and outline potential solutions. The motivation for conducting this analysis arises from two important aspects. (1) Despite strong growth of microinsurance markets in recent years, more than 90 per cent of the poor population in developing countries have limited or no access to insurance. (2) Industry practitioners frequently highlight problems in the insurability of risks that hinder the development of microinsurance. We review 131 papers and find that the most severe problems stem from insufficient resources for risk evaluation, small size of insurance groups, information asymmetries and the size of the insurance premium. On the basis of the analysis, we discuss a number of potential solutions such as, for example, a cooperative microinsurance architecture.

Full Citation: Biener, C. and Eling, M. (2012). Insurability in Microinsurance Markets: An Analysis of Problem and Potential Solutions. The Geneva Papers on Risk and Insurance: Issues and Practice, 37 (1): 77-107. 

‘Web 2.0 technologies in the microinsurance market Challenges and possibilites. The Brazil case’

The development of the microinsurance market poses several challenges to be confronted, one of the most important of which are the management costs. Bearing in mind the high volume and low value, how can the distribution of the premiums and claims handling of a large volume of policies be carried out in the most efficient but cheapest manner? Web 2.0 technologies (blogs, wikis, social networks, Software as a Service) can cooperate with the financial feasibility of microinsurance supplier companies. But in the case of Brazil, other challenges will have to be faced, such as the access to these technologies by microinsurance target clients and the small insurers.There are also opportunities such as the government programme for digital inclusion and the fact that Brazil is the country with the highest proportion of Internet users that use social networks and blogs to keep in touch.

Continue reading

‘New micro-insurance legislation may be implemented by 2014′

Business Day, 29 July 2011 

THE Treasury said yesterday that new legislation for the micro- insurance sector could come into effect by 2014.

This would be an attempt to regularise an industry the government is keen to see expanding insurance cover to the poor, and rid it of unscrupulous companies. The government says that extending micro- insurance to the poor also achieves one of its objectives of encouraging savings among the poor.

SA has a low national savings rate which is sometimes blamed on the lack of incentives from the government to encourage savings. Poor income levels among the black majority are also cited as a reason.

Continue reading

Follow

Get every new post delivered to your Inbox.

Join 62 other followers