Wealth and Insurance Choices: Evidence from US Households

Link: http://public.kenan-flagler.unc.edu/faculty/kuhnenc/RESEARCH/gropper_kuhnen.pdf



Theoretically, wealthier people should buy less insurance, and should self-insure through saving instead, as insurance entails monitoring costs. Here, we use administrative data for 63,000 individuals and, contrary to theory, find that the wealthier have better life and property insurance coverage. Wealth-related differences in background risk, legal risk, liquidity constraints, financial literacy, and pricing explain only a small
fraction of the positive wealth-insurance correlation. This puzzling correlation persists in individual fixed-effects models estimated using 2,500,000 person-month observations. The fact that the less wealthy have less coverage, though intuitively they benefit more from insurance, might increase financial health disparities among households.

Author(s): Michael Gropper, Camelia M. Kuhnen

Publication Date: 16 July 2021

Publication Site: University of North Carolina

Is life insurance a human capital derivatives business?

Link: https://math.illinoisstate.edu/Krzysio/KO-JII-Invited.pdf



Life and disability insurance, as well as annuities, traditionally have been analyzed as products providing protection against random losses. This article proposed that these products can be viewed as derivative instruments created to address the uncertainties and inadequacies of an individual’s human capital, if human capital is viewed as a financial instrument. In short, life insurance (including disability insurance and annuities) is the business of human capital securitization.

Author(s): Krzysztof M. Ostaszewski, PhD, MAAA, FSA, CFA

Publication Date: 2003 — vol 26, pp. 1-14

Publication Site: Journal of Insurance Issues

Rational Ignorance and the Protection Gap: Is There a Cure?

Link: https://www.soa.org/sections/reinsurance/reinsurance-newsletter/2021/march/rsn-2021-03-poon-affat/


The phrase “coverage gap,” heard often from life insurance company executives, is defined as  “the shortfall in the amount of life insurance cover necessary to maintain the current living standards of dependents.” Life insurance companies devote extraordinary amounts of time, effort, and expense trying to educate underinsured individuals about the need to protect themselves and their families from this gap by buying more cover. Could our industry not be addressing one of the key issues leading to the lack of consumer enthusiasm for our products?

Here’s the issue: insurance products and contracts are not consumer-friendly. To the average person, life and living benefits products are at least as byzantine as Brazil’s political system, and the language of insurance contracts could almost be considered an actual dialect. Insurance is thus fertile ground for the manifestation of rational ignorance among potential customers, who are already known to be more likely to pay attention to information about it if it comes from friends and social media posts. (I pity the buyer researching concepts and options such as pure protection, accumulation, critical illness, disability income, or long-term care.)

Author(s): Ronald Poon-Affat

Publication Date: March 2021

Publication Site: Reinsurance News at the Society of Actuaries

A Primer on Insurance Policies and Genetics

Link: https://www.soa.org/resources/research-reports/2021/primer-ins-policies-genetics/

Full report: https://www.soa.org/globalassets/assets/files/resources/research-report/2021/primer-ins-policies-genetics-report.pdf



A new subset of Somatic non-blueprint information is the growing field of Epigenetics, defined as changes ‘above
the genetics,’ where it has recently been found that lifestyle choices also induce non-heritable physical or chemical
changes directly on a person’s DNA after birth, and can be measured by isolating the DNA and revealing these
features. The U.S. Center for Disease Control states: “Epigenetics is the study of how your behaviors and
environment can cause changes that affect the way your genes work. Unlike genetic changes, epigenetic changes
are reversible and do not change your DNA sequence.” (9)

An example of the latter is a finding that the tips of our chromosomes – called telomeres – can shorten or lengthen
in correlation with health status and ‘biological aging,’ a finding that was the subject of a 2009 Nobel Prize (10). An
additional example of epigenetics is in tobacco use, shown below, and generally discussed at the 2020 SOA Health
Conference by Dr. Brian Chen at this link https://webcasts.soa.org/products/actuarial-innovation-and-technologyupdate-on-recent-research#tab-product_tab_speaker_s.

Author(s): James Timmins

Publication Date: March 2021

Publication Site: Society of Actuaries

Grim COVID-19 Scenario Could Cut Pension Liabilities

Link: https://www.thinkadvisor.com/2021/03/09/grim-covid-19-scenario-could-slash-pension-liabilities/


The pandemic could also slash pension plan sponsors’ liabilities, by making ordinary health care an expensive luxury — and driving up the U.S. death rate for decades to come.

Analysts at Club Vita US LLC have presented those scenarios in a look at the possible effects of the COVID-19 pandemic on three types of U.S. pension plans: defined benefit plans sponsored by single employers; defined benefit plans sponsored by multiple private-sector employers; and defined benefit plans sponsored by government employers.

The analysts’ work reflects the same kinds of effects that might affect blocks of life insurance policies, blocks of annuities, and life settlement portfolios.

Author(s): Allison Bell

Publication Date: 9 March 2021

Publication Site: Think Advisor

Underwriting in China – A Digital Transformation

Link: https://www.genre.com/knowledge/publications/ri21-2-en.html


The Life insurance market in China has grown tremendously with premiums increasing nearly three-fold from RMB1.06 trillion in 2010 to RMB2.96 trillion in 2019. With a population now close to 1.4 billion, the insurance penetration – which has grown to 4.6% – is still far from that of developed countries. Together this represents a business development opportunity because we expect the trend of growth in the insurance market to continue.

In anticipation, insurers in China began to move their underwriting from a paper process to an online one approximately three years ago. Today the bulk of transactions are paperless, except for a small volume of bank channel applications. However, given the huge daily volume of new business, insurers still have an urgent need to improve their processes further. While we are not suggesting a major overhaul of underwriting is needed, there is room to incorporate innovative ideas that address various pain points, provide a smoother customer experience while still balancing risk management needs.

Author(s): Orchis Li, Life/Health General Manager, Hong Kong; Dr. Celia Zhang Ying, Life/Health Regional Chief Underwriter & Senior Medical Officer, Shanghai

Publication Date: February 2021

Publication Site: Gen Re

The Question Some Company Owners Don’t Want to Deal With

Link: https://www.nytimes.com/2021/02/12/your-money/company-owners-succession.html


Besides a succession plan, a type of life insurance policy on a person crucial to a business — what’s known as key person insurance — can provide a lifeline to the business.

C. John Bongiovanni, who has been president of Bon Tools since his father, Carl, died of a heart attack in 2017, said he had also dealt with a lack of a succession plan. But what made the initial transition especially difficult, he said, was the lack of insurance, which would have given him some breathing room to sort through the company’s finances and tend to its 70-plus employees.

“The toughest thing at first was to circle the wagons and figure out what was what,” he said. Key person insurance would have also relieved him of some of the pressure he feels to buy other parts of the business, like its real estate, from his mother and to begin to compensate his two sisters, who are not part of the business.

Author(s): Paul Sullivan

Publication Date: 12 February 2021

Publication Site: NY Times