IDEAS home Printed from
   My bibliography  Save this article

Why Some Disaster Insurance Does not Exist


  • Chen Yueyun

    (University of the West)

  • Hamwi Iskandar S.

    (University of Southern Mississippi)


The failure of some disaster insurance market has been a very serious problem. This paper focuses on why disaster reinsurance fails and how that will affect the availability of primary disaster insurance. The insurer’s unexpected costs are added to the expected costs associated with the insured event to illustrate the necessary and sufficient conditions for the existence of disaster insurance and reinsurance. Particularly, investors’ negative response to an insurer’s huge, disaster-related liability exposures may lead to availability problem unless the insurer’s asset value losses in the financial market can be minimized. A large insurer may be more likely to withdraw from underwriting disaster insurance. Three different pricing schemes for disaster reinsurance contracts are investigated. The one which is based on the Option Pricing Theory is rejected because it leads to market failure.

Suggested Citation

  • Chen Yueyun & Hamwi Iskandar S., 2012. "Why Some Disaster Insurance Does not Exist," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 6(1), pages 1-16, February.
  • Handle: RePEc:bpj:apjrin:v:6:y:2012:i:1:n:2

    Download full text from publisher

    File URL:
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    1. Pierre Picard, 2008. "Natural Disaster Insurance and the Equity-Efficiency Trade-Off," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 75(1), pages 17-38.
    2. Browne, Mark J & Hoyt, Robert E, 2000. "The Demand for Flood Insurance: Empirical Evidence," Journal of Risk and Uncertainty, Springer, vol. 20(3), pages 291-306, May.
    3. Bum J. Kim & Harris Schlesinger, 2005. "Adverse Selection in an Insurance Market With Government-Guaranteed Subsistence Levels," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 72(1), pages 61-75.
    4. Kenneth A. Froot, 1999. "The Evolving Market for Catastrophic Event Risk," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 2(3), pages 1-28, September.
    5. Froot, Kenneth A. & O'Connell, Paul G.J., 2008. "On the pricing of intermediated risks: Theory and application to catastrophe reinsurance," Journal of Banking & Finance, Elsevier, vol. 32(1), pages 69-85, January.
    6. Xuanjuan Chen & Helen Doerpinghaus & Bing-Xuan Lin & Tong Yu, 2008. "Catastrophic Losses and Insurer Profitability: Evidence From 9/11," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 75(1), pages 39-62.
    7. Kenneth A. Froot, 1997. "The Limited Financing of Catastrophe Risk: An Overview," NBER Working Papers 6025, National Bureau of Economic Research, Inc.
    8. Kunreuther, Howard, 1996. "Mitigating Disaster Losses through Insurance," Journal of Risk and Uncertainty, Springer, vol. 12(2-3), pages 171-187, May.
    9. Hoerger, Thomas J & Sloan, Frank A & Hassan, Mahmud, 1990. "Loss Volatility, Bankruptcy, and the Demand for Reinsurance," Journal of Risk and Uncertainty, Springer, vol. 3(3), pages 221-245, September.
    10. repec:reg:rpubli:437 is not listed on IDEAS
    11. Kenneth A. Froot, 1999. "The Evolving Market for Catastrophic Event Risk," NBER Working Papers 7287, National Bureau of Economic Research, Inc.
    12. Howard Kunreuther, 2006. "Reflections on U.S. Disaster Insurance Policy for the 21st Century," NBER Working Papers 12449, National Bureau of Economic Research, Inc.
    13. Doherty, Neil A & Garven, James R, 1986. " Price Regulation in Property-Liability Insurance: A Contingent-Claims Approach," Journal of Finance, American Finance Association, vol. 41(5), pages 1031-1050, December.
    14. Mayers, David & Smith, Clifford W, Jr, 1990. "On the Corporate Demand for Insurance: Evidence from the Reinsurance Market," The Journal of Business, University of Chicago Press, vol. 63(1), pages 19-40, January.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:apjrin:v:6:y:2012:i:1:n:2. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.