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1994 | Buch

The Law of Large Numbers and the Strength of Insurance Kapitel lesen Erstes Kapitel lesen

Insurance, Risk Management, and Public Policy

Essays in Memory of Robert I. Mehr

herausgegeben von: Sandra G. Gustavson, Scott E. Harrington

Verlag: Springer Netherlands

Buchreihe : Catastrophe Modeling

Enthalten in: Professional Book Archive

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Über dieses Buch

Five years ago the world lost one of its most prolific insurance scholars, Dr. Robert I. Mehr. His death in 1988 signalled the passing of not only a gifted writer and researcher, but also a pioneering teacher, mentor, and friend. The essays compiled within this volume are intended as an appropriate tribute to this occasionally outrageous individual who touched the lives of so many within the insurance community. Bob Mehr was a teacher who expected and demanded nothing less than perfect scholarship and flawless, efficient writing. Among alumni of the University of lllinois insurance doctoral program, stories still abound of late night and early morning sessions in which students and professor painstakingly debated precise words and phrases for dissertations, journal articles, and textbooks. Bob's respect for language was both immense and contagious, if at times more than a little compulsive. He joked that he could not read letters or novels without pencil in hand for editing. Bob's respect for his doctoral students was equally evident. The confidence he displayed in his students' abilities was sometimes startling, but "competence assumed" often begot "competence in fact." The accomplishments and records amassed by the many who studied with Bob Mehr are impressive and ongoing. On the dedication page in his final textbook, Fundamentals of Insurance, Bob spoke of his affection for those he called his "academic progeny" and wished them happiness as they build their own academic families.

Inhaltsverzeichnis

Frontmatter
1. The Law of Large Numbers and the Strength of Insurance
Abstract
The law of large numbers (or the related central limit theorem) is used in the literature on risk management and insurance to explain pooling of losses as an insurance mechanism. Also called the “law of averages”, the principle holds that the average of a large number of independent identically distributed random variables tends to fall close to the expected value. This result can be used to show that the entry of additional risks to an insured pool tends to reduce the variation of the average loss per policyholder around the expected value.1 When each policyholder’s contribution to the pool’s resources exceeds the expected loss payment, the entry of additional policyholders reduces the probability that the pool’s resources will be insufficient to pay all claims. Thus an increase in the number of policyholders strengthens the insurance by reducing the probability that the pool will fail.2
Michael L. Smith, Stephen A. Kane
2. Corporate Insurance, Reinvestment, and Capital Structure
Abstract
Following Arrow (1963), models of optimal insurance purchases typically have assumed the decision maker to be risk averse and have adopted the expected utility hypothesis to derive the optimal form and level of risk bearing. But this approach is not fruitful for analyzing corporate decisions. Several writers (e.g., Doherty and Tinic 1981; Main, 1983; Mayers and Smith, 1982, 1987; and MacMinn, 1987b) have argued that insurance is redundant if the risk spreading function of insurance can be duplicated by the firm’s owners in the management of their personal investment portfolios. Thus an alternative explanation for corporate insurance purchases has developed that focuses, inter alia, upon taxation, agency costs, bankruptcy costs, and the firm’s contracting relationships with risk averse claimholders (see particularly Mayers and Smith, 1982).
Neil A. Doherty, James R. Garven
3. Measuring the Interest Rate Risk of Property/Casualty Insurer Liabilities
Abstract
Property/casualty insurers sporadically experience swings of varying magnitude in their underwriting income. Despite the inherent riskiness of its business, the insurer can act to reduce its overall risk. Specifically, it can reduce its exposure to wide fluctuations in economic income by identifying and managing interest rate risk. Indeed, not to consider interest rate risk explicitly is to compound needlessly the volatility of capital and economic surplus, which could threaten solvency and survival.
David F. Babbel, David R. Klock
4. Managing Domestic Versus Foreign Risks
Abstract
Organizations domiciled in the United States and around the world are finding themselves operating in an increasingly global business climate. The worldwide effect of the 1987 stock market “crash”, provides evidence of increasing linkages among the economies of all nations. The linkages likely are due in part to expanded internationalization of business organizations, as well as to the ease of communication and travel, and other technological and cultural conditions. Within such a setting, interest in understanding differences between managing a domestic-oriented organization versus one that has a more global perspective would be expected.1 The purpose of the research reported here is to gather and analyze data with the intent of gaining a better understanding of the differences between domestic and “foreign” risk management practices for U.S.-based firms.2
Joan T. Schmit, Kendall Roth, Rick G. Winch
5. Potential Price and Product Quality Changes for Insurance Delivered by Banks
Abstract
Distribution of insurance is not new to bankers. Credit and mortgage insurance are widely sold by banks and sometimes underwritten by bank affiliates. National banks with lending offices in towns with populations of less than 5,000 are allowed to sell all kinds of insurance, and 16 national banks were grandfathered unlimited insurance powers by the Bank Holding Company Act of 1956.1 All states have authority over state-chartered banks, and 11 have extended broad insurance agency powers. In addition, savings and loan associations can underwrite most types of insurance through service corporations; and mutual savings banks in three states underwrite life insurance.
S. Travis Pritchett
6. Taxing Low Income Households in Pursuit of the Public Interest: The case of Compulsory Automobile Insurance
Abstract
Persons with low income and few assets to protect often will be unwilling to buy liability or health insurance.1 Bankruptcy laws limit claims against income and wealth; welfare programs and other types of “free” care provide implicit protection against loss. As a result, failure to buy certain types of insurance coverage can be quite rational. In the case of auto insurance, many persons drive without liability and medical coverage, with the result that part of the cost of their driving falls on others.
Scott E. Harrington
7. The Effects of Shifting Medical Expense from Pip Auto Coverage to First Party Health Insurance
Abstract
An important issue in the design of automobile insurance no-fault laws is the extent to which medical expenses are covered by first party personal injury protection (PIP) coverage, rather than individual or group first party health insurance. Most state no-fault laws make PIP coverage primary and health insurance excess. However, increases in the cost of automobile insurance in some states have been associated with significant pressure to shift costs from PIP coverage to health insurance by reducing PIP benefit limits or by making health insurance primary.
Patricia M. Danzon
8. The Dark Side of Insurance
Abstract
Many speeches, articles, papers and books have been produced extolling the virtues of insurance. Insurance texts typically include in the introductory chapters a list of the benefits insurance provides to society. Although many texts also list the social costs of insurance, the prevailing view is that the benefits outweigh the costs. As expressed by Bob Mehr and Emerson Cammack (1980, p. 10) (and as assisted by generations of graduate students):
“The contributions of insurance to society are significant, although not without their costs. On balance, however, the gains outweigh the cost.”
Stephen P. D’Arcy
Backmatter
Metadaten
Titel
Insurance, Risk Management, and Public Policy
herausgegeben von
Sandra G. Gustavson
Scott E. Harrington
Copyright-Jahr
1994
Verlag
Springer Netherlands
Electronic ISBN
978-94-011-1378-6
Print ISBN
978-94-010-4603-9
DOI
https://doi.org/10.1007/978-94-011-1378-6