Journal of Insurance and Finance 2021 KCI Impact Factor : 0.67

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2008, Vol.19, No.2

  • 1.

    Mossin’s Theorem for Deductible Insurance Policies When Initial Wealth is Random

    Hong,Soon-Koo | 2008, 19(2) | pp.3~32 | number of Cited : 2
    Abstract PDF
    This paper, assuming actuarially fair insurance, examines a Mossin’s Theorem for a deductible insurance policy when initial wealth is random. Existing sufficient conditions for Mossin’s Theorem in a deductible contract are extended. In essence we establish the conditions with a version of negative expectation dependence as well as Brumelle(1974)’s stochastic interdependence notion. Our results are quite general to allow for Aboudi·Thon(1995) or Doherty·Schlesinger(1983a) as a special case. In particular, it is confirmed that our sufficient conditions are not duplicated with those of Hong(2001, 2004, 2007), which also apply for Brumelle(1974)’s and Wright(1987)’s dependence measure to a coinsurance contract. Mossin’s Theorem for deductible insurance, which holds under our conditions, does not hold any more under the conditions of Hong(2001, 2004, 2007) in general, and vice versa. We clearly show how two conditions differ by theory and by hypothetical probability distributions.
  • 2.

    The Effects of Bancassurance and the Business Strategies of Life Insurance Companies

    Jung SeChang , Younghyo Song | 2008, 19(2) | pp.33~53 | number of Cited : 13
    Abstract PDF
    The purpose of this paper is to measure the net effects of bancassurance, which overcomes the limitations of the existing studies. This paper is also to analyse the characteristic variables of life insurance company influencing the performance of bancassurance. The useful implications can be suggested by regressing the net effects of bancassurance on the characteristic variables. We estimate the translog cost function and measure the degree of the scale and cost complementarities. We employ regression in order to analyse the relationship between the degree of the scale and cost complementarities and the characteristic variables of life insurance company. We observe scale economies, but cannot find any cost complementarities which is an important cause for introducing bancassurance. It is desirable to decrease the number of distribution alliances with banks for the economies of scale and also cost complementarities. It may be required to reduce the product ratio sold by bancassurance for the scale economies. The scale economies may be realized in a company which focused on the protection products.
  • 3.

    A Study on Weather Insurance Pricing Based on Stochastic Temperature Modeling

    Chang Soo Lee , Hyuk-Sung Kwon , 하홍준 | 2008, 19(2) | pp.55~76 | number of Cited : 4
    Abstract PDF
    Subject of this paper is weather risk which means financial risk that a business may be exposed regarding weather events such as high or low temperature, snow or rain more or less than expected, and strong wind. Since there is yet no established market for weather derivatives in Korea, weather insurance is the only available risk financing technique currently. However, despite the rather huge potential demand for such insurance products, the weather insurance market has not been so active so far, mainly due to the lack of feasible products which are reasonably priced from the insureds’viewpoints. This paper proposes a weather insurance pricing method which better reflects characteristics of weather variability in Korea. In order to do so, this paper suggests adoption of modified Cao-Wei model to represent variability of maximum daily temperature. This paper explains process for the application of suggested model and also attempts to compare the performance of this model and the index model which was used for the pricing of a weather insurance product introduced by property and casualty insurance companies in Korea. The empirical study performed on the temperature data of 10 inland cities including Seoul for last 10 years reveals that consistent over-pricing on the part of the index model.
  • 4.

    Review of the Compulsory Storm and Flood Insurance and Policy Implications

    Shin Dong Ho | 2008, 19(2) | pp.77~107 | number of Cited : 9
    Abstract PDF
    The current penetration rate of storm and flood insurance in Korea is very low. The main reasons for low penetration rates are summarised: a limit of compulsory insurance, a lack of public knowledge of the benefits of insurance, the traditional role of the government in ad-hoc compensating for disaster losses, and a difficulty of the control of moral hazard to the consignment insurance company. The purpose of this study was to investigate some prerequisites for introducing the compulsory storm and flood insurance in Korea and to make a suggestions for the Korean government. The results are; First, it is necessary to decree a new compulsory clause(article) in the storm and flood insurance law. Second, it should be stopped the ad-hoc free compensating for disaster losses from government simultaneously by a introduction of compulsory storm and flood insurance. Third, government should establish a special non profit organization, which directly operates the storm and flood insurance. It should be provided a unlimited reinsurance guarantee from government. Finally, It should be agreed that the compulsory storm and flood insurance brings a fundamental issue as like compulsory social insurances based on public interests do.
  • 5.

    A Study of the Efficiency of Life Insurance Industry using Undesirable Outputs

    정재욱 , 김재현 | 2008, 19(2) | pp.109~135 | number of Cited : 10
    Abstract PDF
    Firms, in general, produce not only desirable outputs, but also undesirable outputs such as toxic wastes and pollutants. While the standard DEA has been widely used employing only desirable outputs to measure firms' efficiency, modified DEAs were developed to simultaneously deal with both desirable and undesirable outputs of the firm. This paper analyzes and compares the efficiency of life insurance companies using the standard DEA as well as a modified DEA model considering undesirable outputs: lapse and surrender refunds and loan loss reserve. The empirical results show that the number of efficient life insurance companies between the two models is different from year to year. In the meantime, the results find that the performance gap between efficient groups and inefficient groups has widened in both models, as time goes by. The results show, in particular, that small to mid-sized domestic life insurance companies are losing their competitive edge over foreign life insurance companies. In sum, such quite different empirical results between two models implicitly tell us that closer attention should be paid to undesirable outputs in the efficiency analysis of firms.
  • 6.

    Testing for the Presence of Moral Hazard in the Automobile Insurance Market using the Mixed Proportional Hazard Model

    이용우 | 2008, 19(2) | pp.137~159 | number of Cited : 2
    Abstract PDF
    In this paper, with access to the Korean automobile insurance data set, I test for the presence of the moral hazard in the automobile insurance market. So far, most empirical research on asymmetric information in the automobile insurance markets have explored the conditional correlation approach. However, in this methodology, it is almost impossible to distinguish moral hazard and adverse selection separately. Given this circumstance, there have been some recent empirical tests using dynamic data sets to attempt the separation of two phenomena. Among them, I employ the mixed proportional hazard model based on Abbring, Chiappori, Heckman and Pinquet (2002) to distinguish the moral hazard phenomenon separately from adverse selection, controlling for unobserved heterogeneity. Different from the empirical result using the French data in Abbring, Chiappori, Heckman and Pinquet (2002), I have detected the existence of moral hazard in the Korean automobile insurance market. This would suggest that the market imperfections such as moral hazard are market-specific phenomenon.