CRIS London Semniar Series - Volume 5
Thursday 8 December 2005The papers from the CRIS London Seminar series volume 5 were:
Testing for Information Asymmetries in the Market for Property-Liability Reinsurance
Michael Adams and Stephen Diacon
The paper tests for information asymmetries (specifically moral hazard and adverse selection) in the United Kingdom's (UK) property-liability reinsurance market. The existence of possible information asymmetries in the market for reinsurance is explored using two main avenues: first, we examine the link between the primary insurers' residual risk and the quantity of reinsurance purchased and utilize exogeneity tests to determine whether this link is due to adverse selection or moral hazard. Second, we investigate evidence for claims-contingent pricing in the market for reinsurance by exploring the relation between the price of reinsurance purchases and the primary insurers' gross and reinsured claims experience. We find that residual adverse selection exists in motor and third party insurance, particularly in group insurance companies, while moral hazard is present for miscellaneous & pecuniary insurance, again in conglomerate insurance groups. However, in other cases (and in external reinsurance arrangements) reinsurance pricing reduces information asymmetries. We conclude that, contrary to expectations, intra-group reinsurance treaties need better monitoring and more effective claims control through contingent-claims pricing. Our results further suggest that managers of primary insurers may be using intra-group reinsurance for reasons other than traditional risk reduction.
General Insurance, the economy and IPT
Adam Blake
Is there a "compensation culture" in the UK? Trends and liability claim frequency 1976-2002
Paul Fenn and Dev Vencappa
Is there a "compensation culture" in the UK? The actuarial profession maintains that there is, but an influential report by the Better Regulation Task Force argues against this. What has been missing in this debate is an element of statistical rigour in weighing the evidence in support of one position or the other. In this paper we explore trends in the observed numbers and costs of employer's liability claims in the UK and relate these to the main drivers that could plausibly be thought to be responsible for these trends, including recent reforms to the way that claims have been financed and processed through the legal system. To the extent that it is possible to explain the changes in claim frequency and severity observed in the UK over the last three decades by reference to known developments in the economic and socio-legal environment, some of the mystery can be removed from the debate. Of course, the question of what constitutes a "compensation culture" remains, but at least it can be addressed from a more informed perspective.
A copy of the collected papers, from the CRIS London Seminar series volume 5, can be obtained from:
Mrs Jennifer Howis
Centre for Risk and Insurance Studies
Nottingham University Business School
Jubilee Campus
Wollaton Road
NOTTINGHAM
NG8 1BB
Please enclose a cheque for £15 payable to"The University of Nottingham"