A New Turn in the Direction of Insurance and Risk Management Journal

ACADEMIC ARTICLES

The Impact of Health Care Cost Increases on Fraud and Economic Waste
Martin Boyer and Pierre-Thomas Léger

Diverses alternatives pour déterminer les facteurs significatifs de la fréquence d’accidents dans l’assurance automobile
María Del Carmen Melgar Hiraldo, José Antonio Ordaz Sanz et Flor María Guerrero Casas

L’introduction d’un stimulus dissuasif pour contrer la majoration excessive des réclamations à l’assurance : prévention de la délinquance ou règlement différentiel?
Jean-Luc Bacher et Étienne Blais

PROFESSIONAL ARTICLES

Lessons Learned in Dealing with Large-Scaled Disasters
Daniel Hutchison                                                                                                

L’analyse de risque dans les décisions financières (partie 2)
Jean-Pierre Frénois                                                                                              

Le tsunami meurtrier du 26 décembre 2004
Rémi Moreau

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ING CANADA

The Impact of Health Care Cost Increases on Fraud and Economic Waste
Martin Boyer and Pierre-Thomas Léger

In a model of imperfect information with costly auditing, we examine the effect of increases in health-care costs and general inflation on the optimal health-insurance policy and on waste. We show that in such a setting, individuals will buy more than full insurance. Moreover, as the cost of medical care increases, consumers (i.e., patients) are less likely to file unjustified claims while insurance providers audit with a lower probability. As a result, waste associated with costly auditing is reduced. We also show that a general increase in the opportunity cost of illness (reflected through lost earnings due to illness) also decreases waste, but not as much as health-care cost increases

Keywords: Health care fraud, asymmetric information, contract theory.

Diverses alternatives pour déterminer les facteurs significatifs de la fréquence d’accidents dans l’assurance automobile
María Del Carmen Melgar Hiraldo, José Antonio Ordaz Sanz et Flor María Guerrero Casas

Traffic accidents are one of the major problems in the developed societies nowadays. The main purpose of this paper is to analyze the most significant factors that explain the number of this type of accidents. This aspect represents a very useful question for the automobile insurance sector.

The literature points out that count data models are the most used ones on this important topic of the whole of the insurance industry. Traditionally, the Poisson regression and the negative binomial model have been the most provided specifications of this type of methodology we can find. However, zero-inflated models could be more appropriated to explain the existing underlying processes in accident situations.

In the present study, we use a database that has been kindly provided by a Spanish private insurance company. After carrying out a thorough descriptive analysis with these data, we compare the results we have obtained from the application of the three referred types of count models to them. Finally, we discuss about the differences pointing up the general advantages of the zero-inflated models. Nevertheless, all results are quite similar in a qualitative way, suggesting the existence of adverse selection and moral hazard processes in the automobile insurance market.

Keywords: Automobile insurance, accident rates, count data models.

L’introduction d’un stimulus dissuasif pour contrer la majoration excessive des réclamations à l’assurance : prévention de la délinquance ou règlement différentiel?
Jean-Luc Bacher et Étienne Blais

This paper assesses the impact of a dissuasive stimulus on the propensity of insurance holders to boost their claims. Our research, following a quasi-experimental design, foresees the sending of a letter in order to enhance, among the insurance holders in position to formulate a claim following a residential thief, their risk perception of the illegal increase. The results show that insurance holders who are members of the control group tend to ask higher amounts but not in significant terms. The results support more the hypothesis of a differential settlement and that these differences would be function of the group membership of the insurance holder, of the amount claimed by the latest and of the suspicions of the insurance expert regarding the accuracy of the claim.

Keywords: insurance fraud, deterrence, experimental approach, claims.

Lessons Learned in Dealing with Large-Scaled Disasters
Daniel Hutchison  

Many OECD countries have been affected by major harmful events in recent years. The considerable human and economic costs of such events and the repercussion they might have for the global economy have become recurring causes for concern.

Given its intergovernmental and multidisciplinary nature, and its experience in risk and disaster management in a variety of fields, the OECD is well positioned to analyse the impact of major disasters on societies and economies, and to identify optimal practices in response and recovery phases. To this end, the OECD’s International Futures Programme supervised a team of specialists from eight OECD directorates, and a team of Turkish specialists who provided the material for chapter 3. The report was prepared between May and July 2003.

This report analyses the economic and social impacts of recent large-scale disasters, and draws some initial lessons for the monitoring and the management of future disasters. The report primarily focuses on restoring trust and securing recovery after a major harmful event has occurred.

The events reviewed are as diverse as the Chernobyl nuclear accident, the Kobe and Marmara earthquakes, Hurricane Andrew, and the 11^th September terrorist attacks on New York and Washington. Disasters such as these have in common massive effects on large concentrations of people, activity and wealth. They disrupt multiple vital systems such as energy supplies, transport and communications. Their effects spread beyond the region originally affected and generate widespread anxiety. In some cases, the public expresses distrust of the ability of governments to protect citizens.

L’analyse de risque dans les décisions financières (partie 2)
Jean-Pierre Frénois  

In the first part of this article, we proposed a systematic method of using risk analysis in financial decision-making and we underlined the importance of problem formulation and simulation model building. In this second part, we insist on results analysis and interpretation: graphical representation, project ranking by use of stochastic dominance, sensitivity analysis, consequences of the presence of correlation between exogenous variables, proposition to simultaneously determine the discount rate and the probability distribution of the project net present value.

Keywords: risk analysis, simulation, Monte-Carlo method, stochastic dominance, correlation, net present value.

Le tsunami meurtrier du 26 décembre 2004
Rémi Moreau

The author describes the magnitude of the tsunamis that devastated parts of many South-East Asian countries by December 26, 2004, mainly Indonesia, Sri Lanka, India and Thailand, killing 300,000 people, the most important human race disaster of all times. The enormity of the human tragedy is difficult to comprehend and the thoughts are firstly with the victims of that huge catastrophe.

He also looks at the global and generous contributions and donations from world governments, private enterprises and humanitarian groups to support recovery and humanitarian efforts in the wake of such a tremendous tragedy, including UN contributions and multiple aid efforts and medical assistance.

As the world continued to examine the economic cost of relief and rehabilitation for the deadly Indian Ocean tsunamis, insurance industry estimates put total insured losses between $5 billion and $10 billion. Insured losses were expected to be small as the percentage of the overall economic losses because of the limited amount of property insurance coverage purchased in the affected countries.

Finally, he examines lessons learned from the impact and management of future tsunami catastrophes, initiated by UN in partnership with governments, which have key roles to play in disaster prevention, financial support and recovery.