Risk Management, Product Offerings, and Consumer Surplus: Evid ence from the Insurance Industry
Abstract:
We study the ca usal impact of enterprise-wide risk management (ERM) — designed to move fir ms away from a “siloed” structure — on product decisions and consumer surpl us. Exploiting the staggered rollout of an industry-wide ERM mandate in the insurance sector, we analyze life insurers’ offerings of annuities, which now account for nearly 70% of their premium revenues. We find that insurers respond by reducing risky guarantees, raising fees on the riskiest product s, and shifting from traditional variable annuities toward index-linked pro ducts that provide natural hedges. To examine mechanisms and welfare outcom es, we develop a structural model that links consumer demand with multi-pro duct supply. The ERM mandate imposes regulatory costs and corrects firms’ m isperceptions about guarantee risk and cross-product risk interactions. Hig her marginal costs for risky guarantees raise equilibrium prices and decrea se their offerings, leading to substantial losses in consumer surplus. Over all, ERM reshapes insurers’ product strategies and risk exposures, enhancin g financial stability butat a cost to consumers.
DTSTAMP:20260703T034034Z DTSTART:20260707T130000Z DTEND:20260707T140000Z SEQUENCE:0 TRANSP:OPAQUE END:VEVENT END:VCALENDAR