Cassandra R. Cole

Separation of Ownership and Management: Implications for Risk‐Taking Behavior

Issues associated with the relation between the separation of ownership and management and risk‐taking behavior have been considered in an array of studies, with varying results. Due to the wide variety of ownership structures present, the property–casualty insurance industry provides an excellent setting to test the conflicting hypotheses related to separation of ownership from management and risk taking behavior. Employing a large sample of property–liability insurance companies over the period of 1996–2004, we empirically test the alternative hypotheses regarding the implications of separation of ownership from management for firms’ risk taking behavior. The empirical tests include the ownership structures specified in prior research as well as a more detailed classification scheme. We find that each ownership structure is significantly different from every other ownership structure in terms of risk.

An Empirical Examination of Stakeholder Groups as Monitoring Sources in Corporate Governance

Insurers are formally and informally monitored by a variety of stakeholders, including reinsurers, agents, outside board members, and regulators. While other studies have generally examined these stakeholders separately, they have not accounted for the fact that there is some relation among the stakeholder groups, and the presence of these groups is likely to be jointly determined. By empirically controlling for these potential interrelations, we create a more complete assessment of the impact of these stakeholders/monitors on insurers’ risk taking. Specifically, we find that the presence of some stakeholders offsets the degree or presence of others, and that most stakeholders/monitors are associated with a reduction of overall firm risk.

The Impact of Insurer Name Changes on The Demand for Insurance

Corporate name changes are relatively common events, with some evidence suggesting that name changes are strategic in nature. Although prior research has examined the effect of name changes on the firm, these studies have focused primarily on the stock price reaction to name changes. Such a focus has a number of limitations, including a reliance on samples that consist solely of publicly traded firms and an inability to determine whether the source of the impact is driven by increases in revenue, increases in efficiency, and/or reductions in costs. We overcome these limitations by testing the impact of corporate name changes on U.S. property–casualty insurers using detailed statutory data. We find a significant and positive relation between name changes and subsequent growth in premiums. The results are robust across various model specifications and suggest that name changes contain information that consumers interpret as meaningfully positive.

The Insurance Industry's Talent Gap and Where We Go From Here

There is concern among insurers and related firms in the United States and abroad that there will be a shortage of skilled insurance professionals in the next few years as current workers retire. Though there have been discussions among insurers, organizations, and academics as to how to address this issue, until recently, each group has been primarily working in isolation. The Insurance Education & Career Summit, which took place in September 2011, brought together 110 individuals across these groups for the purpose of creating a unified strategy to both attract and retain skilled workers to the insurance industry and work to create the next generation of insurance executives. This article provides a brief background on the talent gap issue. We also discuss its potential impact on the insurance industry. Finally, we summarize the main obstacles identified by Summit participants to both attracting and retaining skilled workers as well as the strategies developed to overcome these obstacles.

The Impact of No-Fault Legislation on Automobile Insurance

Abstract Since its inception, the effectiveness of no-fault legislation has been highly debated. Although some research suggests that no-fault laws are effective in reducing costs, other evidence suggests that the current no-fault systems may not meet the original objectives. This study provides a detailed assessment of the relation of no-fault laws and automobile insurance losses for the period 1994 to 2007. By examining total automobile insurance losses along with liability and personal injury protection losses, we are able to determine if and how specific provisions of the laws are related to claims costs. We find a negative relation between the presence of a no-fault law and total losses, which suggests that no-fault systems are associated with lower losses than the traditional tort system. In addition, an examination of no-fault-only states suggests that specific provisions of no-fault laws, such as thresholds and limitations on benefits, have some effect on losses. With the sunset of Colorado’s no-fault legislation in 2003, the recent passage of Personal Injury Protection Reform in Florida, and proposed federal choice legislation, the overall impact of no-fault as well as the specific components of the laws are of heightened importance to consumers, insurers, and lawmakers.

The effect of product diversification strategies on the performance of health insurance conglomerates

ABSTRACT The conglomerate organizational structure of health insurers suggests two distinct methods of product diversification – the first is firm-level diversification, or diversification within individual affiliates, and the second is conglomerate-level diversification, or diversification across affiliates of the conglomerate. We hypothesize that using both firm- and conglomerate-level diversification may magnify the costs or benefits of diversification on the financial performance of the conglomerate. Our results confirm this hypothesis and suggest a positive relation between health insurer financial performance and the use of both product line diversification methods. Our results not only contribute to the body of literature related to corporate diversification but are also important to policymakers and all health insurance market participants as portions of the Affordable Care Act continue to be implemented.

Automobile Insurance Vehicle Repair Practices: Politics, Economics, and Consumer Interests

There is a continuing debate related to insurers’ use of direct repair programs, in which they contract with particular body shops to perform insured auto repairs according to terms agreed to by the insurers and repair shop owners. A similar debate exists related to insurers specifying the use of aftermarket crash parts instead of original equipment manufacturer parts to replace damaged vehicle components, such as door panels, fenders, and hoods. This study examines these issues from a variety of perspectives providing initial evidence that if properly used, these cost containment tools can be beneficial to consumers and insurers.

Demographic Factors and Price Distortions in Insurance: Demographic Factors and Price Distortions in Insurance

Few papers have analyzed the potential linkages between price distortions and the specific demographic and political traits of customers. The existence of price distortions may have adverse and potentially unintended impacts on certain demographic groups, leading to significant public policy concerns. The current study uses census tract data and rating factors to examine age, income, and race demographics in an effort to determine if any subgroups of the population are adversely impacted by the price distortions of property insurance. The results suggest that Hispanics, lower income households, and specific age groups pay relatively more for insurance coverage than comparison groups.

Market Structure and the Performance of the U.S. Health Insurance Marketplace: A State-Level Analysis

Health insurance premiums have more than doubled over the last ten years, with some suggesting that this may be the result of the high market concentration in the health insurance industry. In this paper, we conduct a state-level analysis in which we examine the health insurance marketplace, the degree of market concentration, and health insurance costs across states. We generally find that the barrier to entry into health insurance market is relatively low, as witnessed by the increase in the number of insurers operating in most states over the sample period; accordingly, the extent of market concentration has declined in recent years. We also find evidence of a positive relation between market concentration and insurer profits.

Internationalization of the Reinsurance Industry: An Analysis of the Net Exposure of Reinsurers

In today’s global marketplace, the internationalization decision has become increasingly relevant for a greater number of firms. We use the framework of the eclectic paradigm to empirically investigate the decision of U.S. reinsurers to internationalize based on their net exposure in both developed and developing nations. The reinsurance industry poses an interesting setting to study internationalization as we can measure the net exposure in a county given the requirements to report both ceded and assumed reinsurance. This allows for a better measure of the overall exposure reinsurers have in a given country. Of particular interest in exploring internationalization are the diversification benefits as well as the potential impact of free-trade initiatives and the economic development of the host country. We find that the characteristics impacting net reinsurance exposure vary based on the characteristics of the countries.