Estimation of Individual Insurance Demand Elasticities and Measuring the Welfare Impact of Premium Increases: An Application of Almost Ideal Demand System

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SHAHABADI ABOLFAZL; SAHABI BAHRAM; salmani younes; valinia arash

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Paper Information

Journal: IRANIAN JOURNAL OF INSURANCE RESEARCH (SANAAT-E-BIMEH) Year:2017 | Volume:32 | Issue:2 (126) Page(s): 1-20

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Title

Estimation of Individual Insurance Demand Elasticities and Measuring the Welfare Impact of Premium Increases: An Application of Almost Ideal Demand System

Author(s)

SHAHABADI ABOLFAZL | SAHABI BAHRAM | salmani younes | valinia arash | Issue Writer Certificate

Keywords

Individual InsurancesQ1

Almost Ideal Demand SystemQ1

Seemingly Unrelated RegressionQ1

Welfare ChangesQ1

Risk and UncertainlyQ1

Abstract

Presence of moral hazard and adverse selection in insurance market increase premiums and lead to exit of high risk aversion individuals from the insurance market resulting in a loss of efficiency. Knowledge of insurance demand elasticities and measurement of the welfare effects of higher premiums, would help insurers adopt suitable remedial policies. This paper investigates this issue for Individual Insurances using AIDS during the period of 2006-2013. Marshallian and income elasticities indicate a weak relationship gross relationship between Individual Insurances. Furthermore, we find that life insurance is a luxury good and that supplementary care insurance and accident insurance are necessities. Hicks and Allen elasticities also suggest a weak net substitutability relationship between Individual Insurances studied. This relationship is stronger for life and accident insurances. According to E. V. and C. V. indices, the insurer, with the aim of reducing inefficiencies, can charge lump sum amounts instead of increasing premiums for low risk aversion individuals. If the insurer decides to increase premiums, it should compensate high risk aversion individuals by payments. Amounts transferred in the first case are much smaller than in the second case.

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APA: Copy

SHAHABADI, ABOLFAZL, SAHABI, BAHRAM, salmani, younes, & valinia, arash. (2017). Estimation of Individual Insurance Demand Elasticities and Measuring the Welfare Impact of Premium Increases: An Application of Almost Ideal Demand System. IRANIAN JOURNAL OF INSURANCE RESEARCH (SANAAT-E-BIMEH), 32(2 (126) ), 1-20. SID. https://sid.ir/paper/100870/en

Vancouver: Copy

SHAHABADI ABOLFAZL, SAHABI BAHRAM, salmani younes, valinia arash. Estimation of Individual Insurance Demand Elasticities and Measuring the Welfare Impact of Premium Increases: An Application of Almost Ideal Demand System. IRANIAN JOURNAL OF INSURANCE RESEARCH (SANAAT-E-BIMEH)[Internet]. 2017;32(2 (126) ):1-20. Available from: https://sid.ir/paper/100870/en

IEEE: Copy

ABOLFAZL SHAHABADI, BAHRAM SAHABI, younes salmani, and arash valinia, “Estimation of Individual Insurance Demand Elasticities and Measuring the Welfare Impact of Premium Increases: An Application of Almost Ideal Demand System,” IRANIAN JOURNAL OF INSURANCE RESEARCH (SANAAT-E-BIMEH), vol. 32, no. 2 (126) , pp. 1–20, 2017, [Online]. Available: https://sid.ir/paper/100870/en

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