The Supply of Catastrophe Insurance Under Regulatory Constraints
AbstractKlein and Kleindorfer provide a brief overview of the current extent of their research on this topic. The intent of this research is to empirically address interactions across the multiple stakeholders in the Catastrophe Insurance Business, i.e. homeowners, businesses, insurers, reinsurers, the construction and real estate sector, and regulatory institutions. Their analysis is aimed at addressing three questions: What is the structure and performance of the catastrophe insurance market? How do factors such as, interdependencies, profits, risk exposures, and distribution impact the performance of the market? What is the impact of regulation of this market on pricing adequacy, pricing precision, and financial risk? What is the current state of the market, and what future sustainable states of the market are possible? This paper is primarily devoted to describing what authors consider to be the structural drivers of supply and demand and the impact of regulatory controls. These drivers are: "Demand structure" (i.e. why consumers buy what they do) obviously contains several components. Items such as location, demography, price, policy features such as the presence of absence of bundling, "quality" effects such as perceived solvency and claims processes, and finally, how products are distributed, all impact consumer choice. In addition, consumers have other risk management options open to them, the most obvious being where to live, what type of construction to choose and what type of "mitigation", if any to employ. "Supply Structure" describes how the consumer business of insurance is conducted. Salient features would be the degree of competition, geography, profitability, solvency, exposure, loss costs, marketing costs, organizational form, financial structure, and regulatory/solvency constraints. Obviously, insurance companies attempt to maximize profits in the face of these variables "Regulatory Impact" on such things as pricing adequacy, pricing precision, and financial risk has important effects on all parties. In particular the freedom to manage ones risk exposure is critical to everyone from the individual consumer to the largest company, and regulation may produce. In an analysis to come later, the researchers will utilize detailed premium record data obtained from ISO on insurance transactions, supplemented by information on expected costs for different policies and risk characteristics. The data will, for the first time, provide and empirically grounded understanding of the supply and demand for CAT-related coverage provided in residential insurance policies. The study will seek to identify the factors that most affect supply and demand and the magnitudes of their relative effects, including the pricing of CAT coverage and alternative policy provisions.
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 Wharton School Center for Financial Institutions, University of Pennsylvania in its series Center for Financial Institutions Working Papers with number 99-25.
Date of creation: Jun 1999
Date of revision:
Contact details of provider:
Postal: 3301 Steinberg Hall-Dietrich Hall, 3620 Locust Walk, Philadelphia, PA 19104.6367
Web page: http://fic.wharton.upenn.edu/fic/
More information through EDIRC
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.:
- Daniel F. Spulber, 1989. "Regulation and Markets," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262192756, December.
- Herring, Richard J & Vankudre, Prashant, 1987. " Growth Opportunities and Risk-Taking by Financial Intermediaries," Journal of Finance, American Finance Association, vol. 42(3), pages 583-99, July.
- Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
- Berger, Allen N & Cummins, J David & Weiss, Mary A, 1997.
"The Coexistence of Multiple Distribution Systems for Financial Services: The Case of Property-Liability Insurance,"
The Journal of Business,
University of Chicago Press, vol. 70(4), pages 515-46, October.
- Allen N. Berger & J. David Cummins & Mary A. Weiss, 1995. "The coexistence of multiple distribution systems for financial services: the case of property-liability insurance," Finance and Economics Discussion Series 95-22, Board of Governors of the Federal Reserve System (U.S.).
- Allen N. Berger & J. David Cummins & Mary A. Weiss, 1995. "The Coexistence of Multiple Distributions Systems for Financial Services: The Case of Property-Liability Insurance," Center for Financial Institutions Working Papers 95-13, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Paul Kleindorfer & Howard Kunreuther, 1999. "Challenges Facing the Insurance Industry in Managing Catastrophic Risks," NBER Chapters, in: The Financing of Catastrophe Risk, pages 149-194 National Bureau of Economic Research, Inc.
- 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.
- J. David Cummins & Mary A. Weiss & Hongmin Zi, 1998.
"Organizational form and efficiency: an analysis of stock and mutual property-liability insurers,"
98-19, Federal Reserve Bank of Philadelphia.
- J. David Cummins & Mary A. Weiss & Hongmin Zi, 1998. "Organizational Form and Efficiency: An Analysis of Stock and Mutual Property-Liability Insurers," Center for Financial Institutions Working Papers 97-02, Wharton School Center for Financial Institutions, University of Pennsylvania.
- J. David Cummins & Mary A. Weiss, 1991. "The structure, conduct, and regulation of the property-liability insurance industry," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 35, pages 117-164.
- Spence, Michael, 1978. "Product differentiation and performance in insurance markets," Journal of Public Economics, Elsevier, vol. 10(3), pages 427-447, December.
- Nell, Martin, 2001. "Staatshaftung für Terrorrisiken?," Working Papers on Risk and Insurance 4, University of Hamburg, Institute for Risk and Insurance.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel).
If references are entirely missing, you can add them using this form.