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The Catastrophic Effects of Natural Disasters on Insurance Markets

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Author Info
W. Kip Viscusi
Patricia Born

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Abstract

Natural catastrophes often have catastrophic risks on insurance companies as well as on the insured. Using a very large dataset on homeowners%u2019 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 %u201Cblockbuster catastrophes.%u201D 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%u2019 premiums are most adversely affected by the catastrophes.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12348.

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Date of creation: Jul 2006
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Handle: RePEc:nbr:nberwo:12348

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Find related papers by JEL classification:
D8 - Microeconomics - - Information, Knowledge, and Uncertainty
G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies
K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability

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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.:
  1. Martin F. Grace & Robert W. Klein & Paul R. Kleindorfer, 2004. "Homeowners Insurance With Bundled Catastrophe Coverage," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 71(3), pages 351-379. [Downloadable!] (restricted)
  2. Patricia Born & William M. Gentry & W. Kip Viscusi & Richard J. Zeckhauser, 1998. "Organizational Form and Insurance Company Performance: Stocks versus Mutuals," NBER Chapters, in: The Economics of Property-Casualty Insurance, pages 167-192 National Bureau of Economic Research, Inc. [Downloadable!]
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  3. Born, Patricia H, 2001. "Insurer Profitability in Different Regulatory and Legal Environments," Journal of Regulatory Economics, Springer, vol. 19(3), pages 211-37, July. [Downloadable!] (restricted)
  4. Viscusi, W Kip, 1993. " The Risky Business of Insurance Pricing," Journal of Risk and Uncertainty, Springer, vol. 7(1), pages 117-39, August.
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  1. W. Kip Viscusi & Richard J. Zeckhauser, 2006. "National Survey Evidence on Disasters and Relief: Risk Beliefs, Self-Interest, and Compassion," NBER Working Papers 12582, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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