Risk Selection in Natural Disaster Insurance -The Case of France
AbstractIt is widely recognized that "market failure" prevents efficient risk sharing in natural disaster insurance. As a consequence, many countries adopted institutional frameworks presenting public sector participation, often praised as public-private partnerships. We define risk selection as a situation where private companies pass insurance of high risk agents on to the public "partner", arguing that this is a potentially important issue in such situations. In order to illustrate our concerns we look at the case of France. We build a simple model that incorporates the main features of the system, such as the uniform premium rate in both high and low risk regions and the existence of a state reinsurer. We show that in our model, risk selection is likely to be present at equilibrium and discuss the policy options available. When comparing with the actual situation in France we find that the "stylized facts" of the system correspond to our results. Additionally, the policies implemented by the government correspond to policies characterized to reduce the potential of risk selection.
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Bibliographic InfoPaper provided by Université de Lausanne, Faculté des HEC, DEEP in its series Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) with number 06.02.
Length: 21 pages
Date of creation: Feb 2006
Date of revision:
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Web page: http://www.hec.unil.ch/deep/publications/cahiers/series
More information through EDIRC
risk selection; property insurance; reinsurance; France;
Other versions of this item:
- Mario Jametti & Thomas von Ungern-Sternberg, 2006. "Risk Selection in Natural Disaster Insurance – the Case of France," CESifo Working Paper Series 1683, CESifo Group Munich.
- Mario Jametti & Thomas von Ungern-Sternberg, 2006. "Risk Selection in Natural Disaster Insurance - the Case of France," Working Papers 2006_1, York University, Department of Economics.
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
- 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:
- NEP-ALL-2006-04-22 (All new papers)
- NEP-FIN-2006-04-22 (Finance)
- NEP-IAS-2006-04-22 (Insurance Economics)
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.:
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Cahiers de Recherches Economiques du DÃ©partement d'EconomÃ©trie et d'Economie politique (DEEP)
04.12, Université de Lausanne, Faculté des HEC, DEEP.
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