Essays in The Economics of Auto Insurance Industry And The Actuarial Analysis of Reverse Mortgages

Abstract

The first part of the dissertation examines the effects of rate regulation, compulsory insurance laws, the wealth of individuals, premiums, and claim costs on insurance affordability and insurance purchase as measured by the ratio of uninsured and underinsured motorist claims frequencies to property damage liability claim frequencies in the US personal auto insurance industry. Because regulations which are intended to let high-risk drivers purchase insurance may discourage low-risk drivers from purchasing insurance, the effect of the regulations should be examined from the perspective of both high-risk and low-risk drivers. Literature using only uninsured motorist claim data finds that the effect of rate regulation, compulsory insurance laws, and residual market is significant on insurance affordability from the perspective of high-risk drivers. However, this study using both uninsured and underinsured motorist claim data demonstrates that the effect is weaker or not significant in increasing insurance purchase in general. The second part of the dissertation tests the sustainability of the Korean reverse mortgage program, reflecting the house price indices in different regions. Literature generally uses aggregate house price indices and consequently underestimates the risks that result from more volatile individual house prices than averaged house prices. This paper predicts house price indices by region and finds that the Korean reverse mortgage program would have losses at 25th percentile or 30th percentile, in contrast to the results of the simulation using the nationwide house price index, which show that the Korean reverse mortgage program is sustainable at 95% confidence level. This paper also concludes that longevity risk is not a big concern in the reverse mortgage program as long as interest rates are low and house prices are high. However, longevity risk inflates the effect of high interest rates and low house prices on the reverse mortgage program.