2009, Vol.20, No.3

Journal of Insurance and Finance 2023 KCI Impact Factor : 0.59

pISSN : 2384-3209
https://journal.kci.go.kr/kiri

Since Mossin(1968), it has long been recognized that insurance is an inferior good within the decreasing absolute risk aversion. The purpose of this paper is to analyze, based on Mossin(1968), the wealth effects on insured’s optimal loss portfolio and asset portfolio, using a general expected utility maximization model. Our main results can be summarized as follows: In particular, if an utility function exhibits DARA, an increase in initial wealth reduces the optimal level of insurance and deteriorates the riskiness of loss portfolio, and so insured’s total risk-taking in the final asset portfolio would in fact increase. However, the certainty equivalent level as well as the mean value of asset portfolio is improved more than an increase in initial wealth due to the saving of insurance loading. The additional results for the case of CARA and IARA are also provided.

The objective of this paper is to investigate the competitions among Korean life insurance companies, using an endogenous timing game in the presence of asymmetric externalities. This application is appropriate, since Korean life insurance market confronts various types of risks as the market is liberalized, and different types of companies, which can be categorized as large size, small size, and foreign companies, are competing one another. Our endogenous timing game model provides two main results. First, the unique subgame perfect Nash equilibrium outcome of the Cournot-type production volume competition is that the small firms become leaders endogenously due to asymmetric externalities. Second, the unique subgame perfect Nash equilibrium outcome of the Bertrand-type price competition game is that big firms become leaders.

This paper analyzes the determinants of insurance demand for selected developed countries and Korea using Panel estimation methods or OLS methods. From the empirical results of the paper, we find some differences between the effects of the determinants in selected developed countries and those in korea. In the case of life insurance industry, demand for insurance depends on expected inflation rates, real interest rates, political rights, financial market development, and the price of insurance in developed countries, while it relies on permanent income, old population ratios, political rights, and financial market development in Korea. On the other hand, in the non-life insurance industry, demand for insurance is significantly related to permanent income, real interest rates, political rights, urbanization, and financial market development in developed countries, and it has much to do with permanent income, expected inflation rates, real interest rates, and financial market development in Korea. The biggest difference, in developed countries, between life insurance industry and non-life insurance industry arises from the empirical results that expected inflation rates affects only the demand for life insurance and permanent income influences only the demand for non-life insurance. We might attribute the discrepancy in the effects of economic factors such as expected inflation rates and rel interest rates between developed countries and Korea to the short time series of korean data.