Risk Selection in Natural-Disaster Insurance
It is widely recognized that market failure prevents efficient risk sharing in natural-disaster insurance, leading to several public-private partnership arrangements across the globe. We argue that risk selection by the private partner is potentially an important issue. We illustrate our concerns with a simple model of reinsurance in a natural-disaster insurance market, based on the French system. Risk selection is a likely equilibrium outcome. Notably, the policies implemented by the French government correspond to the ones we identify to alleviate risk selection. Next, we discuss two public-private partnership settings that deal effectively with risk selection: Florida and Spain.
Volume (Year): 166 (2010)
Issue (Month): 2 (June)
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- Mario JAMETTI & Thomas VON UNGERN-STERNBERG, 2004.
"Disaster Insurance or a Disastrous Insurance - Natural Disaster Insurance in France,"
Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP)
04.12, Université de Lausanne, Faculté des HEC, DEEP.
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