This study investigates the volatility risk premium on the emerging financial market. We also consider the expected return and ESG sentiment. Based on the SSE 50 ETF 5-minute high-frequency spots and daily options data from 2016 to 2021, we adopt nonparametric model-free approaches to calculate realized and implied volatilities. And the volatility risk premium is constructed by subtracting these volatility series. We examine the relations between the volatility risk premium and future excess returns as (...) well as ESG sentiment through multifactor specifications. We find that the volatility risk premium also exists in the Chinese market and is significantly negative. In addition, the statistically positive correlation between the volatility risk premium and aggregate returns is an outlier compared to the empirically negative pattern in developed markets. At last, ESG sentiment is positively associated with the volatility risk premium, especially the impact of environmental and social. This evidence supports the agency theory, which indicates that investors perceive ESG investments as waste resources in a short term and become potentially risky. (shrink)

This paper investigates the link between the total bivariate risk premium and the sum of partial bivariate risk premia. Whereas in the case of small risks, the non interaction between risks is a sufficient condition to obtain the equality between the total risk premium and the sum of partial risk premia, the paper shows that this condition is not sufficient for large risks. The non interaction between risks occurs in two cases: if risks are (...) independent or if individual's marginal utility of one good is independent of the endowment in the other. Without restriction on the utility function, none of these two conditions is sufficient for large risks. If attention is restricted to preferences that exhibit constant absolute risk aversion, the non variability of the marginal utility of good one with respect to variations in endowment in the other remains a sufficient condition, while the independence between risks does not. (shrink)

This note examines the conditions under which the bivariate risk premium for one risk may be negative even if both risks are positively correlated, using a mean variance setting. The link between the bivariate risk premium and the partial bivariate risk premia is also investigated.

Often in insurance decision making, there are risk factors on which the insurer has an informational advantage over the consumer. But when the insurer sets and posts a premium for the consumer to consider, the consumer can potentially use the premium as an informational cue for the loss probability, and thereby to reduce the insurer’s informational advantage. We study, by means of a behavioral model, how consumers would use the premium as an informational cue in such (...) contexts. The belief formation process in our model assumes that both prior knowledge and the premium might have an impact on the consumer’s estimate of the loss probability. Moreover, the premium impacts the estimate through an anchoring-and-adjustment process. The model potentially leads to violations of rational expectations, with which the consumer overestimates the loss probability beyond what could be inferred from the premium, given the premise that the insurer must seek to break even or earn an expected profit. Our model analysis moreover implies that the frequency of such violations is non-increasing as the premium increases. Last, the model implies a generally inverted-U relationship between insurance demand and the premium so that the demand is upward sloping at low premium levels and downward sloping at high premium levels. A pilot field study and a laboratory experiment provide robust evidence for our model implications and calibrations for its parameters. (shrink)

Downside risk aversion (downside RA) and decreasing absolute risk aversion (DARA) are different concepts that describe preferences for which the harm from bearing risk is lessened by an increase in wealth. This note presents some intuitive explanations of the difference between the two concepts using simple lotteries and graphical analysis. All risk-averse utility functions exhibit downside risk aversion, except those that exhibit sufficiently strong increasing absolute risk aversion. In a sense, downside RA is to (...) be expected: adding downside risk to a baseline lottery is analogous to increasing risk while adding upside risk is analogous to decreasing risk. The difference between the two concepts can be attributed to the use of different measures of the harm from risk bearing: downside RA measures harm using the utility premium and DARA measures harm using the risk premium. The two premia can change at different rates and even in different directions as wealth increases. (shrink)

Insufficient attention has been paid to the ethics of distributing costs of insurance risk. Seven approaches are articulated: the egalitarian model, the needs/ability model, the loss history model, the statistical model, the causality model, the moral fault model (avoidability interpretation and worldview interpretation), and eclectic models. The ethical dimensions of each model are explored. Although some reasons are given for preferring the eclectic model, the main purpose of the paper is to provide an ethical framework for further discussion of (...) an oft-neglected issue. (shrink)

By means of minimal assumptions on the individual preferences, I show that the Willingness To Pay (WTP) for both a FSD and SSD reduction of risk is the sum of a mean effect, a pure risk effect and a wealth effect. As a result, the WTP of a risk-averse decision maker may be lower than the WTP of a risk-neutral one, for a large class of individual preferences’ representation and a large class of risks.

ABSTRACTGenetic testing results and research findings raise concerns about access to genetic information by insurers. Recently, the Canadian Life and Health Insurance Association reaffirmed its prerogative to request, for underwriting purposes, the disclosure of clinical and research genetic test results if the participant/patient or his physician has knowledge of the results. Studies have shown that access to genetic information to determine insurability can, in limited instances, lead to actual, or fear of, genetic discrimination, result in individuals refusing to undergo testing (...) or declining participation in genomic research, and being asked to pay higher premiums or denied access to certain types of insurance. Obtaining informed consent for genetic testing and genomic research is crucial and should take into account the potential need to disclose possible insurability risks to patients and participants. Our study analyzed clinical and research consent forms, templates and guidelines from Quebec to investigate two questions: whether consent forms include clauses providing information on potential insurability risks and when such potential risks are included, what information is provided and how it is formulated. Our findings show that current information on insurability risks in Quebec’s forms/guidelines lack coherence, potentially resulting in patients/participants receiving inconsistent information. (shrink)

This paper examines the ethical implications of "poison put" provisions included in bond offerings. A number of firms are using event-risk protections in bond offerings in an effort to attract investors back into the bond market. One of the most common event-risk protections is a "poison put" provision, which allows the bondholder to "put" the bond back to the firm at par or at a premium under certain specified conditions, such as a takeover effort or a downgrading (...) of the bond by rating agencies. While such a provision is obviously of value to the bondholders, there is a secondary effect that is not as obvious. Using such a provision helps to insure that boards of directors must put the interests of all of the stakeholders ahead of any personal interests of the board members, thus protecting the stakeholders. The use of event-risk protections helps to deter takeovers, induce bidders to negotiate with management in any takeover efforts, and avoid two-tier takeover offers. As a result, the "poison put" provisions have a positive impact on share values while simultaneously protecting the investments of bondholders. Such an impact makes the use of "poison put" provisions in bonds an ethical use of management power. (shrink)

This paper shows that temperance is the highest order risk preference condition for which spreading N independent and unfair risks provides the highest level of welfare than any other possible allocations of risks. These results are also interpreted through the concept of N-superadditivity of the utility premium. This paper provides a novel application of temperance, not in terms of two risks as it is common, but in terms of N risks.

Algorithmic predictions are promising for insurance companies to develop personalized risk models for determining premiums. In this context, issues of fairness, discrimination, and social injustice might arise: Algorithms for estimating the risk based on personal data may be biased towards specific social groups, leading to systematic disadvantages for those groups. Personalized premiums may thus lead to discrimination and social injustice. It is well known from many application fields that such biases occur frequently and naturally when prediction models are (...) applied to people unless special efforts are made to avoid them. Insurance is no exception. In this paper, we provide a thorough analysis of algorithmic fairness in the case of insurance premiums. We ask what “fairness” might mean in this context and how the fairness of a premium system can be measured. For this, we apply the established fairness frameworks of the fair machine learning literature to the case of insurance premiums and show which of the existing fairness criteria can be applied to assess the fairness of insurance premiums. We argue that two of the often-discussed group fairness criteria, independence (also called statistical parity or demographic parity) and separation (also known as equalized odds), are not normatively appropriate for insurance premiums. Instead, we propose the sufficiency criterion (also known as well-calibration) as a morally defensible alternative that allows us to test for systematic biases in premiums towards certain groups based on the risk they bring to the pool. In addition, we clarify the connection between group fairness and different degrees of personalization. Our findings enable insurers to assess the fairness properties of their risk models, helping them avoid reputation damage resulting from potentially unfair and discriminatory premium systems. (shrink)

Reputation is a commercially valuable asset. This book focuses upon how enhanced reputation can contribute to commercial asset management through increased share price premium and competitive performance, while reputation loss can significantly erode the ability of the business to successfully retain market share, maximize shareholder value, raise finance, manage debt, and remain independent. It provides practical models and checklists designed to plan reputation management and risk communication strategies.

An anthropogenic global catastrophic risk is a human-induced risk that threatens sustained and wide-scale loss of life and damage to civilisation across the globe. In order to understand how new research on governance mechanisms for emerging technologies might assuage such risks, it is important to ask how perceptions, beliefs, and attitudes towards the governance of global catastrophic risk within the research community shape the conduct of potentially risky research. The aim of this study is to deepen our (...) understanding of emerging technology research culture as it relates to global catastrophic risks, and to shed new light on how new research governance mechanisms might be developed. We analyse in-depth interviews with leading AI and biotech researchers both from universities and the private sector. We develop new insights in terms of four salient themes. First, ‘engineering mindset’, which highlights the premium placed by many interviewees on pursuing interesting research about the physical world for its own sake. Second, ‘self-government’, which looks at how self-regulation of technological development currently occurs. Third, ‘pure incentives’, focussing on how career and other incentives shapes research. Fourth, ‘norms and persuasion’, which examines the role of moral considerations in guiding the research choices of scientists. We end by considering the implications of these findings for future research on governance of anthropogenic global catastrophic risk. (shrink)

This paper presents a new decision theory for modelling choice under risk. The new theory is a two-parameter generalization of expected utility theory. The proposed theory assumes that a decision maker: behaves as if maximizing expected utility; but may experience disappointment when the utility of a lottery’s outcome falls short of the expected utility of the lottery; and may have a preference for gambling. The proposed theory can rationalize the fourfold pattern of risk attitudes; the common ratio effect (...) and the reverse thereof ; the Allais paradox in classical common consequence problems and the reverse Allais paradox—in common consequence problems with an even split of a probability mass; violations of the betweenness axiom; switching behavior in the Samuelson’s example; violations of ordinal, upper and lower cumulative independence ; and preference reversals between valuations and choice. In application to insurance, the theory can rationalize full insurance with an actuarially unfair premium and aversion to probabilistic insurance. In application to optimal portfolio investment, the theory can rationalize the equity premium puzzle. (shrink)

Theoretical arguments regarding the effect of corporate social responsibility (CSR) on firm liability risk are abundant; however, empirical evidence about this relationship is scarce. We investigate the relationship between CSR and the personal liability risk of a firm’s directors and officers. We argue that companies with better CSR performance represent a better underwriting risk for directors’ and officers’ (D&O) insurance providers and, therefore, have a lower cost of insurance. Our results show that firms with better CSR performance (...) are more likely to purchase D&O insurance and have a lower premium-to-coverage ratio, known as the insurance rate-on-line. We also show that this risk-reduction effect is stronger for firms that operate in a high-risk environment and have higher sales growth. These results provide evidence that CSR can be used as a risk management tool to mitigate liability risk and suggest which firms benefit most from this effect. (shrink)

Contemporary discussions of the relationship between negligence liability and the provision of services by both public and private organizations frequently suggest the emergence of a ‘compensation culture’. Despite empirical evidence that compensation culture claims are somewhat inflated, an anxiety persists that risks of tortious liability may still undermine the implementation of public policy. Concerns about the potential negative effects of liability on public administration frame the problem in various ways. First, there is an anxiety that public authorities may overreact to (...) liability risks by becoming excessively risk averse. Secondly, there is a fear that compensation claiming will divert financial resources away from service delivery and towards the payment of insurance premiums and compensation awards. Thirdly, there is the fear that insurance companies will, as ‘risk bullies’, curtail public service activities. And, finally, there is the suggestion that risk management, including legal risk management, is becoming the dominant mode of government decision-making to the exclusion of professional judgement. This article addresses these concerns through a set of empirical case studies about the management of liability risks associated with road maintenance services. Although our findings suggest that public authorities respond to liability risks in a variety of ways, we found only limited evidence of the above concerns. In general terms, it was a case of public authorities being risk aware and responsive as opposed to risk averse. (shrink)

It could be argued that tort law is failing, and arguably an example of this failure is the recent public liability and insurance (‘PL&I’) crisis. A number of solutions have been proposed, but ultimately the chosen solution should address whatever we take to be the cause of this failure. On one account, the PL&I crisis is a result of an unwarranted expansion of the scope of tort law. Proponents of this position sometimes argue that the duty of care owed by (...) defendants to plaintiffs has expanded beyond reasonable levels, such that parties who were not really responsible for another’s misfortune are successfully sued, while those who really were to blame get away without taking any responsibility. However people should take responsibility for their actions, and the only likely consequence of allowing them to shirk it is that they and others will be less likely to exercise due care in the future, since the deterrents of liability and of no compensation for accidentally self-imposed losses will not be there. Others also argue that this expansion is not warranted because it is inappropriately fueled by ‘deep pocket’ considerations rather than by considerations of fault. They argue that the presence of liability insurance sways the judiciary to award damages against defendants since they know that insurers, and not the defendant personally, will pay for it in the end anyway. But although it may seem that no real person has to bear these burdens when they are imposed onto insurers, in reality all of society bears them collectively when insurers are forced to hike their premiums to cover these increasing damages payments. In any case, it seems unfair to force insurers to cover these costs simply because they can afford to do so. If such an expansion is indeed the cause of the PL&I crisis, then a contraction of the scope of tort liability, and a pious return to the fault principle, might remedy the situation. However it could also be argued that inadequate deterrence is the cause of this crisis. On this account the problem would lie not with the tort system’s continued unwarranted expansion, but in the fact that defendants really have been too careless. If prospective injurers were appropriately deterred from engaging in unnecessarily risky activities, then fewer accidents would ever occur in the first place, and this would reduce the need for litigation at its very source. If we take this to be the cause of tort law’s failure then our solution should aim to improve deterrence. Glen Robinson has argued that improved deterrence could be achieved if plaintiffs were allowed to sue defendants for wrongful exposure to ongoing risks of future harm, even in the absence of currently materialized losses. He argues that at least in toxic injury type cases the tortious creation of risk [should be seen as] an appropriate basis of liability, with damages being assessed according to the value of the risk, as an alternative to forcing risk victims to abide the outcome of the event and seek damages only if and when harm materializes. In a sense, Robinson wishes to treat newly-acquired wrongful risks as de-facto wrongful losses, and these are what would be compensated in liability for risk creation (‘LFRC’) cases. Robinson argues that if the extent of damages were fixed to the extent of risk exposure, all detected unreasonable risk creators would be forced to bear the costs of their activities, rather than only those who could be found responsible for another’s injuries ‘on the balance of probabilities’. The incidence of accidents should decrease as a result of improved deterrence, reduce the ‘suing fest’, and so resolve the PL&I crisis. So whilst the first solution involves contracting the scope of tort liability, Robinson’s solution involves an expansion of its scope. However Robinson acknowledges that LFRC seems prima facie incompatible with current tort principles which in the least require the presence of plaintiff losses, defendant fault, and causation to be established before making defendants liable for plaintiffs’ compensation. Since losses would be absent in LFRC cases by definition, the first evidentiary requirement would always be frustrated, and in its absence proof of defendant fault and causation would also seem scant. If such an expansion of tort liability were not supported by current tort principles then it would be no better than proposals to switch accident law across to no-fault, since both solutions would require comprehensive legal reform. However Robinson argues that the above three evidentiary requirements could be met in LFRC cases to the same extent that they are met in other currently accepted cases, and hence that his solution would therefore be preferable to no-fault solutions as it would only require incremental but not comprehensive legal reform. Although I believe that actual losses should be present before allowing plaintiffs to seek compensation, I will not present a positive argument for this conclusion. My aim in this paper is not to debate the relative merits of Robinson’s solution as compared to no-fault solutions, nor to determine which account of the cause of the PL&I crisis is closer to the truth, but rather to find out whether Robinson’s solution would indeed require less radical legal reform than, for example, proposed no-fault solutions. I will argue that Robinson fails to show that current tort principles would support his proposed solution, and hence that his solution is at best on an even footing with no-fault solutions since both would require comprehensive legal reform. (shrink)

This research studies the optimal consumption, investment, and life insurance choices for a wage earner with habit formation, inflation risk, and mortality risk. The wage earner has access to a risk-free asset, an index bond, and a stock in a financial market. The index bond hedges inflation risk, while life insurance hedges mortality risk. The aim of the wage earner is to maximize the expected utility of consumption, bequest, and terminal wealth, where the utility of (...) consumption comes from the part of the consumption that exceeds a minimum consumption requirement given by the habit level. By using the dynamic programming method, we provide and prove a verification theorem and obtain closed-form expressions for the value function, the optimal life insurance premium rate, and the optimal investment and consumption strategies. Numerical results reveal that habit formation and mortality force change play important roles in the financial behaviors of the wage earner. Especially, the impacts of the expected inflation rate and consumption habit on the optimal strategies are mutual restraint; increasing mortality force raises the demand for life insurance; and the effects of other parameters are also affected by consumption habit and mortality force change. (shrink)

We report an experiment where each subject’s ambiguity sensitivity is measured by an ambiguity premium, a concept analogous to and comparable with a risk premium. In our design, some tasks feature known objective risks and others uncertainty about which subjects have imperfect, heterogeneous, information. We show how the smooth ambiguity model can be used to calculate ambiguity premia. A distinctive feature of our approach is estimation of each subject’s subjective beliefs about the uncertainty in ambiguous tasks. We (...) find considerable heterogeneity among subjects in beliefs and ambiguity premia; and that, on average, ambiguity sensitivity is about as strong as risk sensitivity. (shrink)

The core goal of this study is to empirically investigate whether there is a “world price” of corporate sustainability. This is assessed in the context of standard asset pricing models—in particular, by asking whether a risk premium attaches to a sustainability factor after controlling for the Fama–French factors. Both time-series and cross-sectional tests are formulated and applied. The results show that (1) global Fama–French factors have strong power to explain global equity returns and (2) sustainability investments have no (...) significant impact on global equity returns. The absence of a significant relationship between sustainability and returns implies that large institutional investors are free to implement sustainability mandates without fear of breaching their fiduciary duties from realising negative returns due to incorporating a sustainability investment process. (shrink)

Social and environmental ratings provided by social rating agencies are multidimensional. The first goal of our paper is to identify a small number of independent and relevant socially responsible (SR) dimensions reflecting a firms’ coherent posture toward social issues. We put forward that these dimensions are not exactly the same as the ESG ones (Environment, Social, and Governance). Using the six sub-ratings provided by the Vigeo rating agency, we perform a principal component analysis and we highlight three main independent SR (...) dimensions related to (1) business stakeholders (employees, customers, and suppliers), (2) societal stakeholders (environment and society), and (3) financial stakeholders (stockholders and debt holders). The second objective of our paper is to explore the link between stock returns and these three SR dimensions. Our most notable finding is that for each SR dimension, investors ask for an additional risk premium when they accept to hold non-socially responsible stocks. The cost of equity is thus lower for SR firms. The average premium over the period 2003–2010 is larger for the components “business stakeholders” and “financial stakeholders” than for the component “societal stakeholders.” The premium for this last component has only existed since the end of 2008. Since that time, environment and community involvement have become important risk factors strongly considered by investors. For the three dimensions, investors notably penalize large non-social firms and reward small social firms. (shrink)

We provide the first comprehensive and robust evidence on the relationship between CSR disclosure quality and the costs of corporate bonds in China. We find that firms with high CSR disclosure quality are associated with lower costs of corporate bonds. Our findings are robust to endogeneity issues arising from reverse causality, omitted variable bias, and the interdependencies between price and non-price terms. The negative relationship between CSR disclosure quality and the costs of corporate bonds is stronger in weak corporate governance (...) firms and in firms located in regions with weak institutional environments. We also find that firms’ misconduct significantly mitigates the influence of CSR disclosure quality. In the additional analyses, we provide evidence that CSR disclosure can offer incremental information beyond the credit ratings. Regarding non-price terms, we conclude that firms with higher quality of CSR information are less likely to be subject to collateral terms, but they tend to include more restrictive covenants. Further analyses also show that compared with low-quality or mandatory CSR disclosure firms, bond investors perceive firms with CSR disclosures rated above “A” categories or voluntary CSR disclosure as less likely to cause asymmetric information problems and thus charge lower risk premiums. Overall, this study demonstrates that CSR disclosure quality is an important determinant that affects both price and non-price bond contract terms. (shrink)

The research purpose is to find out if signs of a real estate bubble are shown at the austrian real estate market right now. Lending rates are composed of different factors: the base rate is the price that the customer is willing to pay. The risk premium is given to compensate the lenders risk of full or partial failure of repayment. The inflation adjustment takes into account the impairment of money over the term of a loan. The (...) liquidity premium increases with extension of the term of the loan. The European Central Bank influences the interest rate policy by varying the interest for money saved there by the banks. At the moment there are used negative interest rates, i.e. penalty interest. The methodology used was that recently the ECB lowered the interest rates which might cause real estate bubbles and, subsequently, banks and economic crises may follow, if interest rates were to be increased again sooner or later. Therefor the author studied the amount of sales and the connection to the interest rates and the interest rate policy of the banks right now. Summarizing it can be seen that in Kittsee, an Austrian area with a lot of real estate sales, as an example, 565 real estate properties were sold in the years 2005 to 2015, the median prices increased in relation to the buyers residence in Austria or non- Austrians at about 375% to 490%, this might indicate signs of change on the market. (shrink)

The question of whether corporate social responsibility (CSR) has a positive impact on firm value has been almost exclusively analysed from the perspective of the stock market. We have therefore investigated the relationship between the valuation of Euro corporate bonds and the standards of CSR of mainly European companies for the first time in this article. Generally, the debt market exhibits a considerable weight for corporate finance, for which reason creditors should basically play a significant role in the transmission of (...) CSR into the valuation of financial instruments. Given that socially responsible firms are often regarded as economically more successful and less risky, they should have lower risk premia. The results of the empirical analysis, however, reveal that based on an extensive data panel the risk premium for socially responsible firms – according to the classification by SAM Group – was ceterius paribus higher than for non-socially responsible companies. However, only one case of the models investigated was weakly significant. Thus, largely the relationship has to be classified as marginal; so CSR has apparently not yet been incorporated into the pricing of corporate bonds. (shrink)

We study a regression tree algorithm tailored to casualty insurance pure premium estimation problems. Casualty insurance premium is mainly determined by the expected amount that the insurance companies have to pay for the contract. Therefore, casualy insurance companies have to estimate the expected insurance amount on the basis of insurance risk factors. This problem is formulated as a regression problem, i.e. estimation of conditional mean E[Y|x], where Y is insurance amounts and x is risk factors. In (...) this paper, we aim to implement the regression problem in regression tree framework. The difficulty of the problem lies in the fact that the distribution of insurance amount P is highly skewed and exhibits a long-tail toward positive direction. Conventional least-square-error regression tree algorithm is notoriously unstable under such long-tailed error distribution. On the other hand, several types of robust regression trees, such as least-absolute-error regression tree, are neither appropriate in this situation because they yields significant bias to conditional mean E[Y|x]. In this paper, we propose a two-stage tree fitting algorithm. In the first stage, the algorithm constructs a quantile tree, a kind of robust regression tree, which is stable but biased to conditional mean E[Y|x]. In the second stage, the algorithm corrects the bias using least-square error regression tree. We discuss the theoretical background of the algorithm and empirically investigate the performances. We applied the proposed algorithm to a car insurance data set of 318,564 records provided from a north-american insurance company and obtained significantly better results than conventional regression tree algorithm. (shrink)

We describe the results of an experiment on decision making in an insurance context. The experiment was designed to test for the underlying rationality of insurance consumers, where rationality is understood in usual economic terms. In particular, using expected utility as the preference function, we test for positive marginal utility, risk aversion, and decreasing absolute risk aversion, all of which are normal postulates for any microeconomic decision context under uncertainty or risk. We find that there the discrepancy (...) from rational decision making increases with the sophistication of the rationality criteria, that irrationality concerning fair premium contracts is uncharacteristically high, and that the slope of absolute risk aversion seems to depend on the format of the insurance contract. (shrink)

Spanish legislation on insurance and reinsurance mediation stipulates that intermediary can only receive commissions and fees for the management of their policies and prohibits any other form of remuneration. However, it is possible that financial intermediaries who manage larger risks wait until the end of the legal deadline to settle with insurance companies. This common practice in the insurance market hides additional remuneration in defiance of the law. It also means that the risk is not covered within the prescribed (...) period and would, involve a commercial payment to the client, and, on the other hand, affect sustainable claims management. (shrink)

Food products with genetically modified ingredients are common, yet many consumers are unaware of this. When polled, consumers say that they want to know whether their food contains GM ingredients, just as many want to know whether their food is natural or organic. Informing consumers is a major motivation for labeling. But labeling need not be mandatory. Consumers who want GM-free products will pay a premium to support voluntary labeling. Why do consumers want to know about GM ingredients? GM (...) foods are tested to ensure safety and have been on the market for more than a decade. Still, many consumers, including some with food allergies, want to be cautious. Also, GM crops may affect neighboring plants through pollen drift. Despite tests for environmental impact, some consumers may worry that GM crops will adversely effect the environment. The study of risk and its management raises questions not settled by the life sciences alone. This book surveys various labeling policies and the cases for them. It is the first comprehensive, interdisciplinary treatment of the debate about labeling genetically modified food. The contributors include philosophers, bioethicists, food and agricultural scientists, attorneys/legal scholars, and economists. (shrink)

The interruption of supply chain caused by unexpected events results in great economic losses. In this paper, we consider that the supply chain risk management consists of a manufacturer and a retailer faced with demand and supply uncertainties caused by the interruption of supply chain. We consider that the manufacturer transfers the disruption risk by purchasing BI insurance. Three models are established to illustrate the impact of insurance on supply chain decision-making under risk. It is observed that (...) business interruption insurance can increase the retailer’s order quantity and supply chain profit. The higher the interrupt probability is, the more obvious the value of the business interruption insurance is. Furthermore, the retailer helps the manufacturer to share the premium, and the manufacture shares the proceeds of insurance with the retailer, which can stimulate retailer to order more and increase the profit of manufacturer and retailer. (shrink)

Japanese society is often said to be one with a high premium on social capital. Two major theses have been put forward with regard to social capital in the last few years. One, advanced by Putnam (1993), is that social capital enables democracy to work. In other words, the historically acquired and accumulated social capital in terms of the propensity of individuals to engage with others in community and associational life facilitates the task of democratically working out the resolution (...) of conflicts of interest and collectively producing good public policy. The other, advanced by Fukuyama (1995), postulates that social capital allows the creation of prosperity. In other words, a high level of social capital enables business firms to take risks and stretch networks fully in the creation of wealth on a large scale for a prolonged period of time. (shrink)

Employers must determine the types of health care plans to offer and also set employee premiums for each plan provided. Depending on the structure of the employee share of premiums across different health insurance plans, the incentives to choose one plan over another are altered. If employees know premiums do not fully reflect the risk differences among workers, such pricing can give rise to a so-called “death spiral” due to adverse selection. This paper uses longitudinal information from a natural (...) experiment in the management of health benefits for a large employer to explore the impact of moving from a fixed-dollar contribution policy to a partially risk-adjusted employer contribution policy. Our results show that implementing a significant risk adjustment had no discernable effect on adverse selection against the most generous indemnity insurance policy. This stands in stark contrast to previous studies, which have tended to estimate large impacts attributed to selection when employers move to a fixed-dollar policy from one with some risk adjustment. Further analysis suggests that previous studies, which appeared to detect plans in the throes of a death spiral, may instead have been reflecting an inexorable movement away from a non-preferred product, one that would have been inefficient for nearly all workers even in the absence of adverse selection. (shrink)

We use a controlled laboratory experiment to study firm’s protection against potential technological damages. The probability of a catastrophic event is known, and the firm’s costly investment in safety reduces it. The firm can also buy an insurance with full or partial refund against the consequences of the catastrophic event, which ultimately reduces the variance of the firm’s investment-in-safety lottery. The firm makes these two choices simultaneously, after observing the insurance contract proposed by an insurer who chooses this contract within (...) a set of premium–deductible combinations. We parametrize the insurer–firm game such that a risk-neutral insurer maximizes his expected profit by offering an actuarially fair contract with full insurance; a risk-neutral firm is indifferent between investing in safety and accepting a fair insurance contract. We aim at understanding whether investment in safety and insurance are substitutes or complements in the firm’s risk management of catastrophic events. In line with our predictions, the experimental results suggest that they are substitutes rather than complements: the firm’s investment in safety measures is affected by the insurer’s proposed contract, the latter usually involving only partial insurance. (shrink)

In 1992, the Walloon Region modified its investment incentive legislation. The new legislation applies the notion of SME to any business employing up to 250 people and which turnover does not exceed 20 million ECU, and replaces the former interest subsidies and capital premiums by a grant calculated as a percentage of investment. According to the size of the business, the activity sector and the area, the maximum aid may vary from 13 to 21 %. The grant total percentage is (...) calculated by summing up the percentage of aid obtained for five criteria under which job creation is by far the most important. The new legislation gives a partial answer to traditional criticisms against investment incentives. First of all it aims at reducing the risk of accelerated substitution of capital for Labour. Besides, it simplifies adminsitrative procedures and reduces the "sprinkling". It should also reduce the risk of inefficient allocation of resources thatarises when grants go to loss-making entreprises. But the question of whether investment incentives actually increase the level of investment remains largely unanswered. Evidence suggests that investment incentives might have contributed to attract foreign investments hut have little impact on thelevel of domestic investment. Nevertheless, as far as SMEs are concerned, public grants might contribute to increased investment not by reducing the cost or increasing the profitability of the project but rather by increasing the means available in the business. (shrink)

The new class of anti-inflammatory drugs, the COX-2 inhibitors, have been commercially successful to the point of market dominance within a short time of their launch. They attract a price premium on the basis that they are associated with fewer adverse gastric events than traditional anti-inflammatory drugs. This marketing continues even though a pivotal safety study with one of the COX-2 inhibitors, rofecoxib, showed a significant increase in myocardial infarction with rofecoxib use compared with a traditional anti-inflammatory drug. This (...) finding has led to a series of publications containing pooled analyses of existing data that both support and refute the possibility of increased cardiovascular risk with COX-2 inhibitors.These medical journal publications have served to obfuscate rather than provide guidance for medical practitioners. Consideration of a research ethics committee approach to this issue suggests that it would deal with the controversy in a straightforward manner—namely, it would simply inform research participants of the trial results with rofecoxib. The certainty of this research ethics committee approach raises the issue of whether it should be applied in normal medical practice outside of the research environment. A consideration of the legal tests for disclosure of information suggests that therapeutic medical practice should mirror that within the research environment, in this case. (shrink)

Statistical distributions play a prominent role for modeling data in applied fields, particularly in actuarial, financial sciences, and risk management fields. Among the statistical distributions, the heavy-tailed distributions have proven the best choice to use for modeling heavy-tailed financial data. The actuaries are often in search of such types of distributions to provide the best description of the actuarial and financial data. This study presents a new power transformation to introduce a new family of heavy-tailed distributions useful for modeling (...) heavy-tailed financial data. A submodel, namely, heavy-tailed beta-power transformed Weibull model is considered to demonstrate the adequacy of the proposed method. Some actuarial measures such as value at risk, tail value at risk, tail variance, and tail variance premium are calculated. A brief simulation study based on these measures is provided. Finally, an application to the insurance loss dataset is analyzed, which revealed that the proposed distribution is a superior model among the competitors and could potentially be very adequate in describing and modeling actuarial and financial data. (shrink)

An increasing number of genetic tests are available as an early spin-off from human genetic research. Beyond their application in the context of medical diagnosis there are other possible domains of use: e.g. in the testing of individuals asking for life or health insurance. It is claimed that individuals with an increased genetic risk might have to pay higher premiums or, worse, might be unable to obtain insurance coverage at all. The main question discussed in this paper will be (...) whether there is a right to health and/or life insurance coverage without prior genetic testing. The legal regulations of the use of genetic tests in the insurance system are various. While some countries in principle permit the use of (some) genetic tests for the calculation of actuarial risks, others banned genetic tests for non-medical uses; still other countries have not made any explicit provisions up to now. In the face of the attempted harmonisation of legal systems, as well as an increasing commercialisation of the international market for genetic tests, which neglects national borders, providing criteria for a moral evaluation of this issue appears to be a timely and urgent task. The view defended in this paper is that a right to health insurance without genetic testing is legitimised, insofar as health insurance belongs to the provision of elementary requirements, and insofar as the latter is everybody's moral right. On the other hand, it is implausible to postulate a right to life insurance without genetic testing – as long as life insurance is understood to be a part of one's provision of supplementary requirements. (shrink)

The use of algorithmic prediction in insurance is regarded as the beginning of a new era, because it promises to personalise insurance policies and premiums on the basis of individual behaviour and level of risk. The core idea is that the price of the policy would no longer refer to the calculated uncertainty of a pool of policyholders, with the consequence that everyone would have to pay only for her real exposure to risk. For insurance, however, uncertainty is (...) not only a problem – shared uncertainty is a resource. The availability of individual risk information could undermine the principle of risk-pooling and risk-spreading on which insurance is based. The article examines this disruptive change first by exploring the possible consequences of the use of predictive algorithms to set insurance premiums. Will it endanger the principle of mutualisation of risks, producing new forms of discrimination and exclusion from coverage? In a second step, we analyse how the relationship between the insurer and the policyholder changes when the customer knows that the company has voluminous, and continuously updated, data about her real behaviour. (shrink)

Development and strengthening of private pension funds market is impossible without a thorough analysis of its current state, identify unresolved problems in operation. Given the results of the analysis of investment of a fund can be identified difficulties in development funds: - negative impact of the crisis on the financial system as a whole, so that was undermined public confidence in all financial institutions; - reduce solvency population as rising prices, utility costs, and wages almost "frozen", save for retirement is (...) becoming increasingly difficult; - coagulation participation of employers in pension programs for their employees, because in times of crisis, many companies find themselves in dire financial straits and limited amounts of pension contributions; - negative signal to the scheme as slowed down compared to the pre-crisis period of growth by pension funds; - need to improve pension schemes and improving the investment of pension funds; - data reporting of private pension funds show a decrease yields of most funds. Private pension funds should be able to use options, but only to hedge risks on stocks, as most other assets, placing the premiums of private pension funds - a fixed income. Application options would allow private pension funds to hedge against decline in the market value of the shares. Of course, the use of options will decrease the yield of pension funds, but they will be no significant damage. (shrink)

The California power crisis and September 11 terrorist attacks of 2001 have reinvigorated debate over the electric power system’s vulnerabilities. But beyond the threat of terrorist attacks on nuclear power stations and the issue of insufficient power, a central, fossil-, and nuclear-based electric power infrastructure carries additional risks. These include aging transmission and distribution systems, environmental impacts, and the failure to bring power to 1.8 billion people in the developing world. Such vulnerabilities could be lessened through small-scale, decentralized technologies. These (...) micropower units exhibit many hidden benefits, such as improved fuel supply diversity, strengthened transmission and distribution systems, and a lower ecological footprint. Micropower is emerging in two niches: developed nations where businesses place a premium on power reliability and developing-nation regions where small-scale power is the most economical means of alleviating power poverty. But broader deployment of micropower requires removal of market barriers and greater use of innovative financing. (shrink)

Insurance markets have always relied on large amounts of data to assess risks and price their products. New data-driven technologies, including wearable health trackers, smartphone sensors, predictive modelling and Big Data analytics, are challenging these established practices. In tracking insurance clients’ behaviour, these innovations promise the reduction of insurance costs and more accurate pricing through the personalisation of premiums and products. Building on insights from the sociology of markets and Science and Technology Studies, this article investigates the role of economic (...) experimentation in the making of data-driven personalisation markets in insurance. We document a case study of a car insurance experiment, launched by a Belgian direct insurance company in 2016 to set up an experiment of tracking driving style behavioural data of over 5000 participants over a one-year period. Based on interviews and document analysis, we outline how this in vivo experiment was set-up, which interventions and manipulations were imposed to make the experiment successful, and how the study was evaluated by the actors. Using JL Austin’s distinction between happy and unhappy statements, we argue how the experiment, despite its failure not to provide the desired evidence, could be considered a ‘happy’ event. We conclude by highlighting the role of economic experiments ‘in the wild’ for the making of future markets of data-driven personalisation. (shrink)

Insurance is pervasive in many social settings. As a cooperative device based on risk pooling, it serves to attenuate the adverse consequences of various risks by offering policyholders coverage against the losses implied by adverse events in exchange for the payment of premiums. In the insurance industry, the concept of actuarial fairness serves to establish what could be adequate, fair premiums. Accordingly, premiums paid by policyholders should match as closely as possible their risk exposure. Such premiums are the (...) product of the probabilities of losses and the expected losses. This article presents a discussion of the fairness of actuarial fairness through three steps: defining the concept based on its formulation within the insurance industry; determining in which sense it may be about fairness; and raising some objections to the actual fairness of actuarial fairness. The necessity of a normative evaluation of actuarial fairness is justified by the influence of the concept on the current reforms of public insurance systems and the fact that it highlights the question of the repartition of the gains and burdens of social cooperation. (shrink)

This paper considers the demand for insurance in a model with uncertain indemnity. Uncertain indemnity tends to increase the demand for insurance for precautionary reasons, but it also tends to decrease the demand due to the risk created by indemnity uncertainty. When the coefficient of relative prudence is not too large, uncertain indemnity reduces the demand for insurance and partial coverage is optimal even at actuarially fair premiums. In addition, insurance may be an inferior good or a normal good, (...) depending on the behavior of absolute risk aversion and the magnitude of the coefficient of relative risk aversion. (shrink)

Electronic health records are likely to improve health care but in the U.S. they will also enable health insurers to be more selective in deciding to whom to deny coverage or whose premiums to increase. In a Rawlsian social contract (1971) the veil of ignorance does not conceal general scientific information from the hypothetical contracting parties. Nonetheless, this paper shows that social contract considerations rule out risk selection as morally impermissible. Since modern health care must in effect be paid (...) for by public or private insurance, and doing so is efficient, this is a basic part of health care justice. But for information ethics this argument does not extend beyond cases in which provision of information serves to deny a social primary good to members of society. (shrink)

Few issues in business ethics are as polarizing as the practice of risk classification and underwrit­ ing in the insurance industry. Theorists who approach the issue from a background in economics often start from the assumption that policy-holders should be charged a rate that reflects the ex­ pected loss that they bring to the insurance scheme. Yet theorists who approach the question from a background in philosophy or civil rights law often begin with a presumption against socalled “actuarially fair” (...) premiums and in favor of “community rating,” in which everyone is charged the same price. This paper begins by examining and rejecting the three primary argu­ ments that have been given to show that actuarially fair premiums are unjust. It then considers the two primary arguments that have been offered by those who wish to defend the practice of risk classification. These arguments overshoot their target, by requiring a “freedom to under­ write” that is much greater than the level of freedom enjoyed in most other commercial transac­ tions. The paper concludes by presenting a defense of a more limited right to underwrite, one that grants the legitimacy of the central principle of risk classification, but permits specific deviations from that ideal when other important social goods are at stake. (shrink)