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Optimal Catastrophe Insurance with Multiple Catastrophes

Author

Listed:
  • Henri LOUBERGE

    (University of Geneva)

  • Harris SCHLESINGER

    (University of Alabama)

Abstract

This paper adopts a normative approach to catastrophe insurance. It addresses the question of how innovations in the design of insurance contracts could help resolve the capacity gap in the provision of insurance against natural catastrophes. It extends previous research with the same approach first by considering the case of "uncorrelated catastrophes", and second by combining the influence of catastrophes on claims amounts (severity risk) and on the probability of loss (frequency risk). We show that the menu of contracts proposed in previous research, where only one type of catastrophe is considered, is dominated by the menu of contracts proposed in this paper, taking into account the absence of correlation between catastrophes of different kinds.

Suggested Citation

  • Henri LOUBERGE & Harris SCHLESINGER, 1999. "Optimal Catastrophe Insurance with Multiple Catastrophes," FAME Research Paper Series rp7, International Center for Financial Asset Management and Engineering.
    • Handle: RePEc:fam:rpseri:rp7
    as

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    File URL: http://www.swissfinanceinstitute.ch/rp7.pdf
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    References listed on IDEAS

    as
    1. Dwight M. Jaffee & Thomas Russell, 1996. "Catastrophe Insurance, Capital Markets and Uninsurable Risks," Center for Financial Institutions Working Papers 96-12, Wharton School Center for Financial Institutions, University of Pennsylvania.
    2. repec:fth:geneec:99.01 is not listed on IDEAS
    3. Garven, James R. & Louberge, Henri, 1996. "Reinsurance, Taxes, and Efficiency: A Contingent Claims Model of Insurance Market Equilibrium," Journal of Financial Intermediation, Elsevier, vol. 5(1), pages 74-93, January.
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    5. Walter Kielholz & Alex Durrer, 1997. "Insurance Derivatives and Securitization: New Hedging Perspectives for the US Cat Insurance Market," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 22(1), pages 3-16, January.
    6. Doherty, Neil A & Dionne, Georges, 1993. "Insurance with Undiversifiable Risk: Contract Structure and Organizational Form of Insurance Firms," Journal of Risk and Uncertainty, Springer, vol. 6(2), pages 187-203, April.
    7. Robin M. Hogarth & Howard Kunreuther, 1992. "Pricing Insurance and Warranties: Ambiguity and Correlated Risks," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 17(1), pages 35-60, June.
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    Cited by:

    1. Sam Cole, 2010. "The regional portfolio of disruptions, protection, and disasters," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 44(2), pages 251-272, April.

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