Risk selection in natural disaster insurance
AbstractIt is widely recognized that market failure prevents efficient risk sharing in natural disaster insurance, leading to several public-private partnership arrangements across the globe. We argue that risk selection, a situation where the public partner insures the majority of high risk agents, is potentially an important issue. To illustrate our concerns we build a simple model of reinsurance in a natural disaster insurance market. We show that risk selection is a likely equilibrium outcome and discuss the policy options available. The model is based on the French institutional setup and describes well the stylized facts. The policies implemented by the French government correspond to the ones we identify to alleviate risk selection. We also present two alternative public-private partnership setting that deal effectively with risk selection; hurricane insurance in Florida and catastrophe insurance in Spain.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2009/6.
Length: 29 pages
Date of creation: 2009
Date of revision:
Risk selection; natural disaster; property insurance; reinsurance.;
Other versions of this item:
- Mario Jametti & Thomas von Ungern-Sternberg, 2010. "Risk Selection in Natural-Disaster Insurance," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 166(2), pages 344-364, June.
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Mario Jametti & Thomas von Ungern-Sternberg, 2004.
"Disaster Insurance or a Disastrous Insurance – Natural Disaster Insurance in France,"
CESifo Working Paper Series
1303, CESifo Group Munich.
- Mario Jametti & Thomas von Ungern-Sternberg, 2004. "Disaster Insurance or a Disastrous Insturance - Natural Disaster Insurance in France," Department of Economics Working Papers 2004-13, McMaster University.
- Mario JAMETTI & Thomas VON UNGERN-STERNBERG, 2004. "Disaster Insurance or a Disastrous Insurance - Natural Disaster Insurance in France," Cahiers de Recherches Economiques du DÃ©partement d'EconomÃ©trie et d'Economie politique (DEEP) 04.12, Université de Lausanne, Faculté des HEC, DEEP.
- Lehmann, Hansjorg & Zweifel, Peter, 2004. "Innovation and risk selection in deregulated social health insurance," Journal of Health Economics, Elsevier, vol. 23(5), pages 997-1012, September.
- Frame, David E., 2001. "Insurance and Community Welfare," Journal of Urban Economics, Elsevier, vol. 49(2), pages 267-284, March.
- Mario Jametti & Thomas von Ungern-Sternberg, 2009.
"Hurricane Insurance in Florida,"
Quaderni della facoltÃ di Scienze economiche dell'UniversitÃ di Lugano
0905, USI Università della Svizzera italiana.
- Thomas von Ungern-Sternberg, 2009. "Hurricane Insurance in Florida," Cahiers de Recherches Economiques du DÃ©partement d'EconomÃ©trie et d'Economie politique (DEEP) 09.01, Université de Lausanne, Faculté des HEC, DEEP.
- Mario Jametti & Thomas von Ungern-Sternberg, 2009. "Hurricane Insurance in Florida," CESifo Working Paper Series 2768, CESifo Group Munich.
- Sean Nicholson & Kate Bundorf & Rebecca M. Stein & Daniel Polsky, 2003. "The Magnitude and Nature of Risk Selection in Employer-Sponsored Health Plans," NBER Working Papers 9937, National Bureau of Economic Research, Inc.
- Christian Gollier, 2005. "Some Aspects of the Economics of Catastrophe Risk Insurance," CESifo Working Paper Series 1409, CESifo Group Munich.
- Yujing Shen & Randall P. Ellis, 2002. "How profitable is risk selection? A comparison of four risk adjustment models," Health Economics, John Wiley & Sons, Ltd., vol. 11(2), pages 165-174.
- 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.
- Daniel Polsky & Sean Nicholson, 2004. "Why Are Managed Care Plans Less Expensive: Risk Selection, Utilization, or Reimbursement?," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 71(1), pages 21-40.
- von Ungern-Sternberg, Thomas, 2004. "Efficient Monopolies: The Limits of Competition in the European Property Insurance Market," OUP Catalogue, Oxford University Press, number 9780199268818, July.
- Joseph P. Newhouse, 1996. "Reimbursing Health Plans and Health Providers: Efficiency in Production versus Selection," Journal of Economic Literature, American Economic Association, vol. 34(3), pages 1236-1263, September.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.