This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Reinsurance for Catastrophes and Cataclysms

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
David M. Cutler
Richard J. Zeckhauser

Additional information is available for the following registered author(s):

Abstract

This paper examines the optimal design of insurance and reinsurance policies. We first consider reinsurance for catastrophes: risks which are large for any one insurer but not for the reinsurance market as a whole. Reinsurance for catastrophes is complicated by adverse selection. Optimal reinsurnace in the presence of adverse selection depends critically on the source of information asymmetry. When information on the probability of a loss is private but the magnitude of the loss is public optimal reinsurance employs a deductible-style deductible-style excess-of-loss policy, and when is is private but the proba- bility of a loss is common, optimal reinsurance covers small and large risks, but makes the primary insurer responsible for moderate risks. There is a dramatic divergence between these designs, which suggests that traditional approaches to design may be misguided. We then consider reinsurance for cata- clysms: risks that are so large that a loss can threaten the solvency of re- insurance such as a major earthquake, while others derive from common risks-changes in conditions that affect many individuals-such as the liability revolution or or escalating medical care costs. We argue that cataclysms must be reinsured in either broad securities markets or by the government. Beyond their one- period loss potential, cataclysms pose another risk: risk levels change over time. A simulation model traces the implications of evolving risk levels for long-term patterns of losses and premiums, where the latter reflect learning learning about loss distributions. Premium risk emerges as an important part of risk, which reinsurance and primary insurance markets do not adequately diversify."

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. 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.

File URL: http://www.nber.org/papers/w5913.pdf
File Format: application/pdf
File Function:
Download Restriction: Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Publisher Info
Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5913.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: Feb 1997
Date of revision:
Publication status: published relationship to a non-chapter. This should not happen. Please contact NBER.
Handle: RePEc:nbr:nberwo:5913

Note: AP PE
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: ().

Related research
Keywords:

Other versions of this item:

References listed on IDEAS
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. Pratt, John W & Zeckhauser, Richard J, 1989. " The Impact of Risk Sharing on Efficient Decision," Journal of Risk and Uncertainty, Springer, vol. 2(3), pages 219-34, September.
  2. J. David Cummins & Christopher M. Lewis & Richard D. Phillips, 1998. "Pricing Excess-of-loss Reinsurance Contracts Against Catastrophic Loss," Center for Financial Institutions Working Papers 98-09, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
    Other versions:
  3. Sara Borden & Asani Sarkar, 1996. "Securitizing property catastrophe risk," Current Issues in Economics and Finance, Federal Reserve Bank of New York, issue Aug. [Downloadable!]
  4. Louis Kaplow, 1991. "Incentives and Government Relief for Risk," NBER Working Papers 3007, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Cochrane, John H, 1995. "Time-Consistent Health Insurance," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 445-73, June. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, 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. David M. Cutler & Richard J. Zeckhauser, 1997. "Adverse Selection in Health Insurance," NBER Working Papers 6107, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Hans H. Glismann & Klaus Schrader, 2001. "Ein funktionstüchtiges System privater Arbeitslosenversicherung," Kiel Working Papers 1076, Kiel Institute for the World Economy. [Downloadable!]
  3. Kenneth A. Froot, 1999. "The Market for Catastrophe Risk: A Clinical Examination," NBER Working Papers 7286, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Anonymous & Roe, Terry L., 1999. "Policy Reform, Market Stability, And Food Security; Proceedings Of A Conference Of The International Agricultural Trade Research Consortium," Policy Reform, Market Stability, and Food Security Conference, June 26-27, 1998, Alexandria Virginia 14538, International Agricultural Trade Research Consortium. [Downloadable!]
Statistics
Access and download statistics

Did you know? IDEAS also indexes book chapters.

This page was last updated on 2009-11-25.


This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.