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CSAE Working Paper WPS/2011-16

At the local level, where distinct provider markets exist in metropolitan areas,8 the health insurance industry’s market concentration is even more severe. The U.S. Justice Department considers a market “highly concentrated” if one company holds more than a 42 percent share of that market,9 a level that is common in Virginia and more than 30 other states. In Abilene, Texas, for example, the top insurer controls 85 percent of the market.10 In Bangor, Maine, the biggest insurer controls 74 percent of the market.11 The market leader in the Battle Creek, Michigan, area holds 83 percent, and 57 percent of the Lincoln, Nebraska, market is served by a lone insurer.12 Americans are paying for this. | csaeĩ25 CENTRE FOR THE STUDY OF I YFARC k AFRICAN ECONOMIES CSAE Working Paper WPS 2011-16 Funeral insurance Erlend Bergt September 2011 Abstract Funeral insurance has existed at least since antiquity and it remains popular in many parts of Africa today. Yet the study of funeral insurance as a distinct form of insurance has hitherto been neglected. This paper presents a model in which funeral insurance combines regular life insurance with a restriction on how the payout is spent. The model predicts that there is an intermediate range of income and wealth where funeral insurance is demanded. The prediction is tested on a nationally representative sample of black South African households a setting where both life and funeral insurance are widely available. The model also gives conditions under which funeral insurance is not demanded at any level of income and wealth. This may explain why funeral insurance is less popular in developed countries even among the relatively poor. JEL codes D81 G22 O12 1 Introduction Funeral insurance is one of the earliest documented forms of insurance. It seems to have existed through most of history and across the globe and it is probably still the single most popular type of insurance in large parts of Africa. Yet the study of this phenomenon has until recently been largely neglected by economists. The purpose of this paper is to provide the first treatment of funeral insurance as a distinct form of insurance. I am grateful for comments and insights from my thesis supervisors Tim Besley and Maitreesh Ghatak and from my examiners Greg Fischer and Stefan Dercon as well as from Daniel Clarke and participants at the CSAE seminar series and the CSAE Conference 2011. I wish to thank the Research Council of Norway and the British Academy for financial support and the South African Advertising Research Foundation for giving me access to their data. 1 Centre for the Study of African Economies Department of Economics University of Oxford email .