Insurability and Mitigation of Flood Losses in Private Households in Germany

In Germany, flood insurance is provided by private insurers as a supplement to building or contents insurance. This article presents the results of a survey of insurance companies with regard to eligibility conditions for flood insurance changes after August 2002, when a severe flood caused 1.8 billion euro of insured losses in the Elbe and the Danube catchment areas, and the general role of insurance in flood risk management in Germany. Besides insurance coverage, governmental funding and public donations played an important role in loss compensation after the August 2002 flood. Therefore, this article also analyzes flood loss compensation, risk awareness, and mitigation in insured and uninsured private households. Insured households received loss compensation earlier. They also showed slightly better risk awareness and mitigation strategies. Appropriate incentives should be combined with flood insurance in order to strengthen future private flood loss mitigation. However, there is some evidence that the surveyed insurance companies do little to encourage precautionary measures. To overcome this problem, flood hazards and mitigation strategies should be better communicated to both insurance companies and property owners.     

Economic Evaluation of Scale Dependent Technology Investments

We study the effect of financial risk on the economic evaluation of a project with capacity decisions. Capacity decisions have an important effect on the project̂s value through the up‐front investment, the associated operating cost, and constraints on output. However, increased scale also affects the financial risk of the project through its effect on the operating leverage of the investment. Although it has long been recognized in the finance literature that operating leverage affects project risk, this result has not been incorporated in the operations management literature when evaluating projects. We study the decision problem of a firm that must choose project scale. Future cash flow uncertainty is introduced by uncertain future market prices. The firm's capacity decision affects the firm's potential sales, its expected price for output, and its costs. We study the firm's profit maximizing scale decision using the CAPM model for risk adjustment. Our results include that project risk, as measured by the required rate of return, is related to the inverse of the expected profit per unit sold. We also show that project risk is related to the scale choice. In contrast, in traditional discounted cash flow analysis (DCF), a fixed prescribed rate is used to evaluate the project and choose its scale. When a fixed rate is used with DCF, a manager will ignore the effect of scale on risk and choose suboptimal capacity that reduces project value. S/he will also misestimate project value. Use of DCF for choosing scale is studied for two special cases. It is shown that if the manager is directed to use a prescribed discount rate that induces the optimal scale decision, then the manager will greatly undervalue the project. In contrast, if the discount rate is set to the risk of the optimally‐scaled project, the manager will undersize the project by a small amount, and slightly undervalue the project with the economic impact of the error being small. These results underline the importance of understanding the source of financial risk in projects where risk is endogenous to the project design.     

Coordination of benefits reduces double payments.

As a means of reducing the cost of duplicate health care coverage, the health insurance industry utilizes a mechanism called coordination of benefits (COB). The main purposes of COB are to limit recovery to 100 percent of actual charges and to assign insurers primary and secondary responsibilities to pay these charges. Nearly all health plans, including HMOs, Blue Cross/Blue Shield plans, and commercial insurers, coordinate benefits, mostly for group coverage, often on the basis of procedures found in state insurance codes. While COB provides an effective cost reduction mechanism to health insurers, several issues remain in its administration, including difficulties that arise when carriers refuse to pay, when HMO members self-refer, and when coordination is attempted with an uninsured plan.     

Insurer Competition in Health Care Markets

The impact of insurer competition on welfare, negotiated provider prices, and premiums in the U.S. private health care industry is theoretically ambiguous. Reduced competition may increase the premiums charged by insurers and their payments made to hospitals. However, it may also strengthen insurers' bargaining leverage when negotiating with hospitals, thereby generating offsetting cost decreases. To understand and measure this trade‐off, we estimate a model of employer‐insurer and hospital‐insurer bargaining over premiums and reimbursements, household demand for insurance, and individual demand for hospitals using detailed California admissions, claims, and enrollment data. We simulate the removal of both large and small insurers from consumers' choice sets. Although consumer welfare decreases and premiums typically increase, we find that premiums can fall upon the removal of a small insurer if an employer imposes effective premium constraints through negotiations with the remaining insurers. We also document substantial heterogeneity in hospital price adjustments upon the removal of an insurer, with renegotiated price increases and decreases of as much as 10% across markets.     

企业所有者与经理人委托代理关系中最优激励报酬机制研究——兼论企业产业类型与业绩报酬的关系

为解决企业委托代理关系中经理人的道德风险和逆向选择问题,企业所有者必须设立一套最优激励报酬机制来激励和约束经理人的行为,使其从自身的利益出发采取对企业最有利的行动。最优激励报酬机制由固定收益、信息租金、风险收益、激励收益和经理人市场价格五部分组成。经理人的业绩激励收益与企业的产业类型相关。     

Financing Liabilities Under Superfund

One of the more critical environmental risk areas involves the financing of cleanup costs associated with past improper disposal of hazardous wastes. These costs will run into the tens of billions of dollars. The federal Superfund program and related state programs are the driving forces for cleaning up hazardous waste. Under Superfund, the government collects taxes and coordinates cleanup strategies, and searches for potentially responsible parties (generators, disposers, transporters) to assist in financing the cleanup. To lessen the financial impact, responsible parties are looking to their liability insurers to provide coverage under old general liability insurance policies. Insurance companies contend that Superfund liabilities are not covered under liability policies. The paper examines the various financing methods and liabilities produced by Superfund. Particular emphasis is placed on developments in the courts which are resulting in a significant shift in the financial responsibilities to the insurance industry. Broad estimates of the financial impact of Superfund liabilities are developed. Finally, several public policy issues, which are raised by the topics exmained in this paper, are discussed.     

Information‐Sensitive Replenishment when Inventory Records Are Inaccurate

Inspired by recent empirical work on inventory record inaccuracy, we consider a periodic review inventory system with imperfect inventory records and unobserved lost sales. Record inaccuracies are assumed to arrive via an error process that perturbs physical inventory but is unobserved by the inventory manager. The inventory manager maintains a probability distribution around the physical inventory level that he updates based on sales observations using Bayes Theorem. The focus of this study is on understanding, approximating, and evaluating optimal forward‐looking replenishment in this environment. By analyzing one‐ and two‐period versions of the problem, we demonstrate several mechanisms by which the error process and associated record inaccuracy can impact optimal replenishment. Record inaccuracy generally brings an incentive for a myopic manager to increase stock to buffer the added uncertainty. On the other hand, a forward‐looking manager will stock less than a myopic manager, in part to improve information content for future decisions. Using an approximate partially observed dynamic programming policy and associated bound, we numerically corroborate our analytical findings and measure the effectiveness of an intelligent myopic heuristic. We find that the myopic heuristic is likely sufficiently good in practical settings targeting high service levels.     

Coverage by directional sensors in randomly deployed wireless sensor networks

We study a novel “coverage by directional sensors” problem with tunable orientations on a set of discrete targets. We propose a Maximum Coverage with Minimum Sensors (MCMS) problem in which coverage in terms of the number of targets to be covered is maximized whereas the number of sensors to be activated is minimized. We present its exact Integer Linear Programming (ILP) formulation and an approximate (but computationally efficient) centralized greedy algorithm (CGA) solution. These centralized solutions are used as baselines for comparison. Then we provide a distributed greedy algorithm (DGA) solution. By incorporating a measure of the sensors residual energy into DGA, we further develop a Sensing Neighborhood Cooperative Sleeping (SNCS) protocol which performs adaptive scheduling on a larger time scale. Finally, we evaluate the properties of the proposed solutions and protocols in terms of providing coverage and maximizing network lifetime through extensive simulations. Moreover, for the case of circular coverage, we compare against the best known existing coverage algorithm.     

The Complementary Roles of Mitigation and Insurance in Managing Catastrophic Risks

This paper examines the impact that insurance coupled with specific risk mitigation measures (RMMs) could have on reducing losses from hurricanes and earthquakes as well as improving the solvency position of insurers who provide coverage against these hazards. We first explore why relatively few individuals adopt cost-effective RMMs by reporting on the results of empirical studies and controlled laboratory studies. We then investigate the impact that an RMM has on both the expected losses and those from a worst case scenario in two model cities—Oakland (an earthquake-prone area) and Miami/Dade County (a hurricane-prone area) which were constructed respectively with the assistance of two modeling firms. The paper then explores three programs for forging a meaningful public-private sector partnership: well-enforced building codes, insurance premium reductions linked with long-term loans, and lower deductibles on insurance policies tied to mitigation. We conclude by briefly examining four issues for future research on linking mitigation with insurance.     

What innovation managers really do: a multiple-case investigation into the informal role profiles of innovation managers

Over the last fifteen years companies tended to formalise their innovation management activities and to establish formal jobs like the innovation officer, the network manager or the innovation manager. Knowledge of the informal role profiles of these formal roles is still rare. HR and R&D Managers do not know which informal role profile might suit them best, thus having difficulties to assign the best candidates for jobs in innovation management. Researchers cannot help to resolve the problem. Our research answers the question what innovation managers really do, by analysing their tasks, skills and traits, theoretically based on informal role theories. Furthermore, we will analyse how these characteristics change with company size. To provide answers to our research questions we choose a multiple-case study approach. We found, among others, that innovation managers fulfil the role of the relationship and process promotor or a combination of both with the champion, but we also found, that the innovation manager’s roles profile becomes fuzzier with shrinking company size. Our results have practical implications for top management and also HR and R&D managers, enabling them to better select and steer employees in innovation management. Researchers will be able to build on our results because we offer a comprehensive understanding of the informal role profiles of innovation managers based on informal role theories.     

逆向选择条件下带奖惩金的两期保险契约模型及其Pareto改进性研究

为了更有效的规避影响保险市场交易效率的逆向选择问题，本文分投保人风险类型为两种和多种情形建立了带奖惩金的两期保险契约模型，首次提出可以用奖励金和惩罚金有效甄别投保人的风险类型。该模型根据投保人第一个保险期内的索赔情况在第二个保险期对其进行奖励或惩罚，高风险类型的投保人如果选择为低风险类型投保人设计的保险契约，则其在第二阶段受到惩罚的概率要远远大于得到奖励的概率，即风险越高的投保人越害怕惩罚金，因此所建模型满足斯彭斯-莫里斯分离条件。带奖惩金的两期保险契约模型中保险公司的期望利润仍然为0，并不会给投保人带来额外的经济负担，却能够实现对传统部分保险契约简单重复两次的严格帕累托改进。最后采用一个算例说明了该模型的有效性。     

Making Sense of Risk—A Sociological Perspective on the Management of Risk

This article describes how risk has been conceptualized in the business and organizational literature through four distinct transformations: from the techno‐scientific perspective to the cognitive, the social‐cultural, and, finally, to the constructionist perspective. Each domain conceptualizes risk in different ways, as organizations have found it difficult to understand and mitigate using the risk management tools available. Conceptualizing risk as sensemaking becomes relevant due to the complexity of information available to the risk manager, and, coupled with time constraints, this means that risk managers increasingly rely on making sense of possible threats rather than on the accuracy of the information received. This shift presents four contributions to the current literature. First, it suggests that the role of risk management is shifting from being technical in nature to being about risk sensemaking, where the manager engages with the social and physical environment with the aim of acquiring cues that could indicate how future events will unfold. Second, a sensemaking perspective implies a shift in the use of risk management systems from being “containers” of knowledge about past risk events to lending legitimacy to the plausibility of the success of future decisions. Third, the role of the risk manager in managing individual risks changes and becomes one of managing everything using the social networks and systems available as indicators of future risk events. Finally, the risk manager and the systems he or she relies upon are regarded as a source of risk in themselves as both act as gatekeepers for organizational risk decision making.     

Kann denn Coaching Führung sein?

May coaching be leadership? An analysis of literature on the term coaching. An analysis of the German-speaking literature about coaching shows for what the term Coaching or rather the title coach is used in actual publications dealing with the leading manager as a coach. It becomes apparent, that coaching is not seen as a specialized advisory profession. Instead the term is used as an alternative expression for leadership vocabulary as management style or managerial functions. The elaboration of terms and concepts concludes, that semantically it is meant leadership when it comes to the concept of the coaching manager. To be an exception, the management by systemic approach forms a brand-new perspective about organizations. However, to give respects to the German-speaking coaching community there should be a difference between leadership and coaching as well as notions and titles should be used more accurate among professional management coaches.     

Incentive Contracts for Managing a Project with Uncertain Completion Time

We examine two time‐related incentive project management contracts (C1 and C2 contracts) when the manager conducts a reverse auction. Under the C1 contract, the contractor with the lowest bid price wins; however, the manager imposes a linear and symmetric incentive/disincentive for early/late completion according to a pre‐specified due date. Under the C2 contract, the winning contractor has the lowest composite score that is based on the quoted price and the quoted due date; however, in addition to the linear and symmetric penalty/incentive, the contractor is subject to an additional penalty for late completion. While the C2 contract is more sophisticated than the C1 contract (in terms of the number of decisions that each party has to make), our analysis reveals that, unless the project is truly urgent, the more complicated C2 contract adds no value to the manager— the simple C1 contract will suffice.     

Semiautonomous Vehicle Risk Analysis: A Telematics‐Based Anomaly Detection Approach

The transition to semiautonomous driving is set to considerably reduce road accident rates as human error is progressively removed from the driving task. Concurrently, autonomous capabilities will transform the transportation risk landscape and significantly disrupt the insurance industry. Semiautonomous vehicle (SAV) risks will begin to alternate between human error and technological susceptibilities. The evolving risk landscape will force a departure from traditional risk assessment approaches that rely on historical data to quantify insurable risks. This article investigates the risk structure of SAVs and employs a telematics‐based anomaly detection model to assess split risk profiles. An unsupervised multivariate Gaussian (MVG) based anomaly detection method is used to identify abnormal driving patterns based on accelerometer and GPS sensors of manually driven vehicles. Parameters are inferred for vehicles equipped with semiautonomous capabilities and the resulting split risk profile is determined. The MVG approach allows for the quantification of vehicle risks by the relative frequency and severity of observed anomalies and a location‐based risk analysis is performed for a more comprehensive assessment. This approach contributes to the challenge of quantifying SAV risks and the methods employed here can be applied to evolving data sources pertinent to SAVs. Utilizing the vast amounts of sensor‐generated data will enable insurers to proactively reassess the collective performances of both the artificial driving agent and human driver.     

Incentives in a Stage‐Gate Process

Many large organizations use a stage‐gate process to manage new product development projects. In a typical stage‐gate process project managers learn about potential ideas from research and exert effort in development while senior executives make intervening go/no‐go decisions. This decentralized decision making results in an agency problem because the idea quality in early stages is unknown to the executive and the project manager must exert unobservable development effort in later stages. In light of these challenges, how should the firm structure incentives to ensure that project managers reveal relevant information and invest the appropriate effort to create value? In this study, we develop a model of adverse selection in research and moral hazard in development with a go/no‐go decision at the intervening gate. Our results show that the principal's uncertainty regarding early‐stage idea quality—a term we refer to as idea risk—alters the effect of late‐stage development risk. The presence of idea risk can alter the incentives offered to the agent and may lead the principal to reject projects that otherwise seem favorable in terms of positive net present value. A simulation of early‐stage ideas, found through search on a complex landscape, shows that the firm can mitigate the negative effects of idea risk by encouraging breadth of search and high tolerance for failure.     

An Evaluation of Risk Estimation Procedures for Mixtures of Carcinogens

The estimation of health risks from exposure to a mixture of chemical carcinogens is generally based on the combination of information from several available single compound studies. The current practice of directly summing the upper bound risk estimates of individual carcinogenic components as an upper bound on the total risk of a mixture is known to be generally too conservative. Gaylor and Chen (1996, Risk Analysis) proposed a simple procedure to compute an upper bound on the total risk using only the upper confidence limits and central risk estimates of individual carcinogens. The Gaylor-Chen procedure was derived based on an underlying assumption of the normality for the distributions of individual risk estimates. In this paper we evaluated the Gaylor-Chen approach in terms of the coverage probability. The performance of the Gaylor-Chen approach in terms the coverages of the upper confidence limits on the true risks of individual carcinogens. In general, if the coverage probabilities for the individual carcinogens are all approximately equal to the nominal level, then the Gaylor-Chen approach should perform well. However, the Gaylor-Chen approach can be conservative or anti-conservative if some or all individual upper confidence limit estimates are conservative or anti-conservative.     

The Role of Revenue‐Focused Managerial Performance Measures in Supply Chain Coordination

Many firms employ revenue‐focused managerial performance measures (RF‐MPMs) that cause managers to worry more about revenues than about costs. Although this can seemingly misalign the interests of a manager, we show that the use of such measures can help supply chain partners to overcome hold‐up issues with respect to capacity and promotion investments. We develop a game theoretic model in which two supply chain partners engage in repeated interactions in which the supplier invests in capacity and the buyer invests in demand promotion. Following the realization of demand in each period, the two firms negotiate over the output quantity and wholesale price. The novelty of our model is that we allow the owners of each firm to delegate decision‐making power and negotiating responsibility to a free‐agent manager. We characterize the conditions under which the owners of both firms employ RF‐MPMs in equilibrium and benefit from doing so. For a special case of our model, we show that for the owners of the buyer, an RF‐MPM is equivalent to a price only relational contract, and that it complements a price and quantity relational contract as a mechanism for mitigating hold‐up issues.     

Court decisions hold implications for managed care plans--Part one

The managed care industry--and HMOs in particular--is now facing the realities of a maturing business. Maturity has brought a competitive tension to the HMO/managed care field, one consequence of which is increased litigation, not only among HMOs but also between HMOs and their suppliers, customers, and indemnity insurers. Entanglement in the legal system is an outgrowth of efforts to gain or preserve a competitive edge, reduce costs, and attract customers. This article highlights selected legal developments from the past two years that reflect the causes and effects of this environment. Additional cases will be discussed in the March-April 1990 issue of the journal.     

Minimally invasive surgery: a payer's point of view

For insurers, the decision to provide coverage for a new technology sets in motion a series of events that can cause real dilemmas. Ordinarily, a new technology, once covered as a benefit, expands in utilization, sometimes dramatically. The trick for the insurer is too determine how much of this new utilization is appropriate and how much is not. Failure to gain control of the technology can contribute to further cost increases.