The catastrophic effects of natural disasters on insurance markets
AbstractNatural disasters often have catastrophic risks on insurance companies as well as on the insured. Using a very large dataset on homeowners’ insurance coverage by state, by firm, and by year for the 1984 to 2004 period, this paper documents the positive effect on losses and loss ratios of both unexpected catastrophes as well as large events that the authors term “blockbuster catastrophes.” Insurers adapt to these catastrophic risks by raising insurance rates, leading to lower loss ratios after the catastrophic event. There is a widespread event of unexpected catastrophes and blockbuster catastrophes that reduces total premiums earned in the state, reduces the total number writing insurance coverage in the state, and leads to the exit of firms from the state. Firms with low levels of homeowners’ premiums are most adversely affected by the catastrophes. Copyright Springer Science + Business Media, LLC 2006
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Bibliographic InfoArticle provided by Springer in its journal Journal of Risk and Uncertainty.
Volume (Year): 33 (2006)
Issue (Month): 1 (September)
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Web page: http://www.springerlink.com/link.asp?id=100299
Catastrophic risks; Homeowners’ insurance; Natural disasters;
Other versions of this item:
- W. Kip Viscusi & Patricia Born, 2006. "The Catastrophic Effects of Natural Disasters on Insurance Markets," NBER Working Papers 12348, National Bureau of Economic Research, Inc.
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
- K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
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