Anne Gron

Terrorism and Insurance Markets: A Role for the Government as Insurer?

Since September 11, 2001, insurance markets have been struggling to adjust to new information about the magnitude of risks posed by terrorism, and to the loss of tens of billions of dollars in reserves because of claims relating to the September 11 attacks. Insurance coverage for terror-related losses has become more expensive and for some risks difficult or impossible to obtain. As a result, various interest groups have called for the Federal government to provide coverage for terrorism losses, and proposals for increased government involvement are moving forward in Washington. We question the wisdom of any further measures of this sort. They are likely to come too late to address short-term market disruption, and in the long run may well supplant or distort desirable market responses to the new information about terrorism risk.

Risk Overhang and Loan Portfolio Decisions: Small Business Loan Supply Before and During the Financial Crisis

We estimate a structural model of bank portfolio lending and find that the typical U.S. community bank reduced its business lending during the global financial crisis. The decline in business credit was driven by increased risk overhang effects (consistent with a reduction in the liquidity of assets held on bank balance sheets) and by reduced loan supply elasticities suggestive of credit rationing (consistent with an increase in lender risk aversion). Nevertheless, we identify a cadre of strategically focused relationship banks that made and maintained higher levels of business loans during the crisis.

Risk Overhang and Loan Portfolio Decisions

Despite operating under substantial regulatory constraints, we find that commercial banks manage their investments largely consistent with the predictions of portfolio choice models with capital market imperfections. Based on 1990-2002 data for small (assets less than

Vertical Integration and Information Technology Adoption: A Study of the Insurance Industry

1 billion) U.S. commercial banks, net new lending to the business, real estate, and consumer sectors increased with expected sector profitability, tended to decrease with the illiquidity of existing (overhanging) loan stocks, and was responsive to correlations in cross-sector returns. Small banks are most appropriate for this study, because they make illiquid loans and manage risk via on-balance sheet (non-hedged) diversification strategies.

Compensation and Industry Profitability: Evidence from the Property-Casualty Insurance Industry

This paper examines how differences in vertical integration and prior IT investments shape IT investment patterns within an industry. We focus on the insurance industry where information technology investment has had an important and sustainable impact and where longstanding, systematic differences in the extent of vertical integration in distribution across firms provides a natural way to examine the effect of vertical integration on technology adoption. We show that although less vertically integrated insurers had slower rates of Internet adoption ceteris paribus, less integrated insurers had greater prior investment in compatible client/server technologies which increased the rate of adoption. Without accounting for prior investments, one might conclude that less vertically integrated firms had higher rates of Internet adoption, ceteris paribus. These results demonstrate the importance of controlling for technology differences when examining the effects of organizational structure on IT investment.

Vertical Integration, Transactions Costs, and Technology Adoption - In the Insurance Industry

This article provides an empirical investigation of a multiple principal-multiple agent relationship under changing industry conditions. Using thirty-four years of biannual data, it investigates the relationship between property-casualty insurers and agents representing multiple insurers. Several facts emerge. Average commission rates and the number of insurers represented are lower when insurers have higher profitability. Agency income is not systematically related to insurer profitability. Competition from alternative distribution systems and technological innovation have reduced commission rates. Larger agencies have lower average commission rates. These facts are interpreted in light of industry history and economic theory and suggest areas for further research. Copyright 1998 by University of Chicago Press.

Differentiation and Competition in HMO Markets

Advances in frontier technology are only the first in a series of steps that lead to economic growth. The next step involves use of that technology by economic agents. In this paper, we examine whether frictions created by differences in firm boundaries affect the speed with which firms adopt new technology. We show that vertical integration in distribution has a significant impact on the speed with which insurers adopt Internet applications that require coordination with agents. In contrast, vertical integration does not effect adoption of basic access technologies that can be adopted without agent cooperation.