<p><span>Risk Management, Product Offerings, and Consumer Surplus: Evidence from the Insurance Industry</span></p>

Ellis, Cameron; Ellul, Andrew; Jotikasthira, Chotibhak; Xu, Jianren

doi:10.2139/ssrn.5160872

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Risk Management, Product Offerings, and Consumer Surplus: Evidence from the Insurance Industry

SMU Cox School of Business Research Paper No, 25-6

HKU Jockey Club Enterprise Sustainability Global Research Institute - Archive

49 Pages Posted: 3 Mar 2025 Last revised: 30 Nov 2025

See all articles by Cameron Ellis

Cameron Ellis

University of Iowa - Department of Finance

Indiana University - Kelley School of Business - Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); - Centre for Studies in Economics and Finance (CSEF)

Chotibhak Jotikasthira

Southern Methodist University (SMU) - Finance Department

Jianren Xu

University of North Texas

Date Written: March 11, 2025

Abstract

We study the causal impact of enterprise-wide risk management (ERM) — designed to move firms away from a "siloed'" structure — on product decisions and consumer surplus. 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 products, and shifting from traditional variable annuities toward index-linked products that provide natural hedges. To examine mechanisms and welfare outcomes, we develop a structural model that links consumer demand with multi-product supply. The ERM mandate imposes regulatory costs and corrects firms’ misperceptions about guarantee risk and cross-product risk interactions. Higher marginal costs for risky guarantees raise equilibrium prices and decrease their offerings, leading to substantial losses in consumer surplus. Overall, ERM reshapes insurers’ product strategies and risk exposures, enhancing financial stability but at a cost to consumers.

Keywords: Enterprise Risk Management, Variable Annuities, Index-Linked Annuities, Risk Management, G22, G28, G32, G11

Suggested Citation: Suggested Citation

Ellis, Cameron and Ellul, Andrew and Jotikasthira, Chotibhak and Xu, Jianren,

Risk Management, Product Offerings, and Consumer Surplus: Evidence from the Insurance Industry

(March 11, 2025). SMU Cox School of Business Research Paper No, 25-6, HKU Jockey Club Enterprise Sustainability Global Research Institute - Archive, Available at SSRN: https://ssrn.com/abstract=5160872 or http://dx.doi.org/10.2139/ssrn.5160872