Archive for the ‘insurance and risk’ Category

New Evidence on the Risk of Requiring Long-Term Care

February 23, 2015 Comments off

New Evidence on the Risk of Requiring Long-Term Care
Source: Center for Retirement Research at Boston College

Long-term care is one of the major expenses faced by many older Americans. Yet, we have only limited information about the risk of needing long-term care and the expected duration of care. The expectations of needing to receive home health care, live in an assisted living facility or live in a nursing home are essential inputs into models of optimal post-retirement saving and long-term care insurance purchase. Previous research has used the Robinson (1996) transition matrix, based on National Long Term Care Survey (NLTCS) data for 1982-89. The Robinson model predicts that men and women aged 65 have a 27 and 44 percent chance, respectively, of ever needing nursing home care. Recent evidence suggests that those earlier estimates may be extremely misleading in important dimensions. Using Health and Retirement Study (HRS) data from 1992-2010, Hurd, Michaud, and Rohwedder (2013) estimate that men and women aged 50 have a 50 and 65 percent chance, respectively, of ever needing care. But, they also estimate shorter average durations of care, resulting, as we show, from a greater chance of returning to the community, conditional on admission. If nursing home care is a high-probability but relatively low-cost occurrence, models that treat it as a lower-probability, high-cost occurrence may overstate the value of insurance.

We update and modify the Robinson model using more recent data from both the NLTCS and the HRS. We show that the low lifetime utilization rates and high conditional mean durations of stay in the Robinson model are artifacts of specific features of the statistical model that was fitted to the data. We also show that impairment and most use of care by age has declined and that the 2004 NLTCS and the 1996-2010 HRS yield similar cross-sectional patterns of care use. We revise and update the care transition model, and we show that use of the new transition matrix substantially reduces simulated values of willingness-to-pay in an optimal long-term care insurance model.

Risk Management for Grants Administration: A Case Study of the Department of Education

February 19, 2015 Comments off

Risk Management for Grants Administration: A Case Study of the Department of Education (PDF)
Source: IBM Center for the Business of Government

In this report, Kwak and Keleher examine the experience of the U .S . Department of Education in implementing risk management initiatives, which it initiated in 2001 . During this period, the department created its Risk Management Service, and expanded that office in 2007 . At the same time, the department also con- tinued to refine and revise its risk management tools, and now uses two new tools: the State Score Cards and the Entity Risk Review . This report explains how these two tools are being used and provides examples of how risk management tools have been used to track the progress of two high risk grantees: Detroit Public Schools and Puerto Rico .

Based on their examination of the Department of Education’s experience, Young and Keleher present a series of lessons learned and recommendations for other agencies . A major lesson is that the use of an automated, data-driven risk assessment tool enabled the department to apply uniform and consistent risk assessment procedures and make better use of audit data . The authors also learned that effective risk management is an iterative process that requires thoughtful use of existing data sources and consistent efforts to incorporate new ones .

Defining a Framework for Decision Making in Cyberspace

February 18, 2015 Comments off

Defining a Framework for Decision Making in Cyberspace (PDF)
Source: IBM Center for the Business of Government

This report is intended to provide cyberspace decision makers with a more comprehensive, clearer description of cyberspace, which they can use to manage and make decisions about cyberspace programs to improve government’s effectiveness in this critically important area. The report offers an assessment and recommendations focused on the unique characteristics of cyberspace, which were initially designed without much focus on security or risk management. Improving the definition of cyberspace will improve current understanding of how to address cyber issues strategically, as well as how, when, and what tools decision makers should use to respond to cyber events.

Mortality Risk

February 18, 2015 Comments off

Mortality Risk
Source: Insurance Information Institute

The chart below shows the likelihood, or odds, of dying as a result of a specific type of accident. The odds of dying over a one-year period are based on the U.S. population as a whole, not on participants in any particular activity or on how dangerous that activity may be. For example, more people are killed in auto accidents than in motorcycle accidents or airplane crashes, not because riding a motorcycle or traveling in an airplane is more or less dangerous, but because far more people travel by car. The lifetime chances of dying in a car accident are about 1 in 491, compared with 1 in 135,666 for fatal injuries caused by lightning.

Heart disease is the leading cause of death in the U.S., accounting for nearly 600,000 fatalities in 2010, according to the Centers for Disease Control. Influenza and pneumonia ranked ninth in 2010, accounting for some 50,000 fatalities. However, pandemic influenza viruses have the potential to be far more deadly. An estimated 675,000 Americans died during the 1918 Spanish influenza pandemic, the deadliest and most infectious known influenza strain to date.

Liability risk management in the global rail industry

February 7, 2015 Comments off

Liability risk management in the global rail industry
Source: Aon

2013 was characterised by several major railway accidents causing injury and loss of life; resulting in severe financial exposures and even bankruptcy for the organisations found liable.

Now, an analysis of Europe-wide accident data by Aon Global Risk Consulting has found that those companies implementing active risk management programmes focusing on incident causes (precursors) can have a positive impact on their ability to reduce losses in the long term.

Key findings from the report entitled Rail Risk – Stay on Track: Liability risk management in the global rail industry, include:

  • Measuring accident precursors is #1 risk management method
  • Up to 42% of accidents are directly related to precursors
  • Railway operators often have not identified the potential impact of large (liability) exposures resulting from accidents

With rail networks supporting ever increasing amounts of passenger and freight traffic, the stresses on equipment, infrastructure and personnel are rising exponentially. This report details some of the major problems affecting the industry and suggests practical solutions to move forward. The potential for catastrophic loss is clear however the financial impact is not.

Free registration required

The Global Risks report 2015

January 26, 2015 Comments off

The Global Risks report 2015
Source: World Economic Forum

The 2015 edition of the Global Risks report completes a decade of highlighting the most significant long-term risks worldwide, drawing on the perspectives of experts and global decision-makers.

Over that time, analysis has moved from risk identification to thinking through risk interconnections and the potentially cascading effects that result.

Taking this effort one step further, this year’s report underscores potential causes as well as solutions to global risks.

Not only do we set out a view on 28 global risks in the report’s traditional categories (economic, environmental, societal, geopolitical and technological) but also we consider the drivers of those risks in the form of 13 trends.

In addition, we have selected initiatives for addressing significant challenges, which we hope will inspire collaboration among business, government and civil society communities.

The ACA’s Risk Spreading Mechanisms: A Primer on Reinsurance, Risk Corridors and Risk Adjustment

January 20, 2015 Comments off

The ACA’s Risk Spreading Mechanisms: A Primer on Reinsurance, Risk Corridors and Risk Adjustment
Source: American Action Forum

The 2010 Affordable Care Act (ACA) health reform law established state-based health insurance exchanges to provide an individual market for qualified health insurance plans. The state exchanges sell insurance plans to any citizen, regardless of health status. Enrollees who purchase plans through an exchange can receive federal premium subsidies if their household income falls between 100 and 400 percent of the federal poverty level. This primer provides an overview of the ACA’s risk mitigation provisions that apply to individual and/or small group market plans: reinsurance, risk corridors, and risk adjustment.

While the exchanges are implemented and administered by either the state or the federal government, the qualified health plans offered are sold by private insurance companies and designed to be in compliance with the ACA regulations. For insurers, offering a plan on the exchange is very different than offering a plan on the pre-ACA individual market or to a group purchaser such as a large company. For one, the issuer offering their first exchange plan in 2014 had no way of knowing the health status or previous claims history of the applicants; some exchange enrollees may have been uninsured for many years and have a long list of unmet medical needs. Secondly, the applicant must be charged the same premium as everyone else in their age band, and the oldest applicants cannot be charged more than three times the rate of the youngest. And finally, insurance companies are selling a new insurance product, with newly mandated benefits, and limits on cost-sharing, but they have no control over how many, or how few, individuals enroll.

Issuers priced their products according to their best projections. However, for the reasons listed above, uncertainty about risk pools is larger than for a mature market. In order to improve the incentives for insurers to participate, the ACA includes three risk spreading mechanisms: temporary reinsurance, temporary risk corridors, and permanent risk adjustment, all of which address potential risk pool issues by limiting the amount an insurance company can lose by participating in the marketplace. Risk adjustment is designed to spread risk among plans to prevent adverse selection, reinsurance helps plans with individuals who have unexpectedly high medical costs, and risk corridors protect both health plans and the federal government against uncertainty in pricing during the initial years of the ACA’s market reforms. These mechanisms allow insurance companies to price their products more competitively, as any significant losses will be partially offset.


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