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Long Term Insurance (LTI) for Addressing Catastrophe Risk

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  • Dwight Jaffee
  • Howard Kunreuther
  • Erwann Michel-Kerjan

Abstract

This paper proposes long-term insurance (LTI) as an alternative to the standard annual homeowners policy using lessons from the mortgage market as a benchmark. LTI has the potential to significantly increase social welfare by reducing insurers’ administrative costs, lowering search costs and uncertainty for consumers and providing incentives for long-term investment in mitigation measures to protect property. A two-period model illustrates situations that would make a long-term contract attractive to both insurers and consumers under competitive market conditions.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14210.

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Date of creation: Aug 2008
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Handle: RePEc:nbr:nberwo:14210

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  1. Tomasz Piskorski & Alexei Tchistyi, 2010. "Optimal Mortgage Design," Review of Financial Studies, Society for Financial Studies, vol. 23(8), pages 3098-3140, August.
  2. Koijen, Ralph S.J. & Hemert, Otto Van & Nieuwerburgh, Stijn Van, 2009. "Mortgage timing," Journal of Financial Economics, Elsevier, vol. 93(2), pages 292-324, August.
  3. Dwight Jaffee, 2006. "Monoline Restrictions, with Applications to Mortgage Insurance and Title Insurance," Review of Industrial Organization, Springer, vol. 28(2), pages 83-108, 03.
  4. Kunreuther, Howard & Meszaros, Jacqueline & Hogarth, Robin M. & Spranca, Mark, 1995. "Ambiguity and underwriter decision processes," Journal of Economic Behavior & Organization, Elsevier, vol. 26(3), pages 337-352, May.
  5. Michel-Kerjan Erwann & de Marcellis-Warin Nathalie, 2006. "Public-Private Programs for Covering Extreme Events: The Impact of Information Distribution on Risk-Sharing," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 1(2), pages 1-30, February.
  6. Erwann Michel-Kerjan & Frederic Morlaye, 2008. "Extreme Events, Global Warming, and Insurance-Linked Securities: How to Trigger the “Tipping Point”," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 33(1), pages 153-176, January.
  7. Kunreuther, Howard & Sanderson, Warren & Vetschera, Rudolf, 1985. "A behavioral model of the adoption of protective activities," Journal of Economic Behavior & Organization, Elsevier, vol. 6(1), pages 1-15, March.
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Cited by:
  1. Erwann Michel-Kerjan & Carolyn Kousky, 2009. "Come Rain or Shine: Evidence on Flood Insurance Purchases in Florida," Working Papers hal-00372387, HAL.
  2. Iris Grossmann & M. Morgan, 2011. "Tropical cyclones, climate change, and scientific uncertainty: what do we know, what does it mean, and what should be done?," Climatic Change, Springer, vol. 108(3), pages 543-579, October.
  3. Haitao Yin, 2013. "Insurance Approach for Financing Extreme Climate Event Losses in China: A Status Analysis," EEPSEA Research Report rr2013035, Economy and Environment Program for Southeast Asia (EEPSEA), revised Mar 2013.
  4. Laure Cabantous & Denis Hilton & Howard Kunreuther & Erwann Michel-Kerjan, 2010. "Is Imprecise Knowledge Better than Conflicting Expertise? Evidence from Insurers’ Decisions in the United States," ICBBR Working Papers 7, International Centre for Behavioural Business Research.
  5. Kousky, Carolyn & Kunreuther, Howard C., 2009. "Improving Flood Insurance and Flood Risk Management: Insights from St. Louis, Missouri," Discussion Papers dp-09-07, Resources For the Future.

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