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The Role of Actuaries and Underwriters in Insuring Ambiguous Risks

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  • Howard Kunreuther

Abstract

Although there is a large body of literature on the unwillingness of the insurance industry to offer protection against risks such as environmental pollution, there has been only limited analysis regarding two key actors in the decision process—actuaries and underwriters. However, if actuaries and underwriters feel that a particular type of risk is uninsurable, then it is unlikely to be offered. This paper investigates how ambiguities associated with a risk affect actuary and underwriter decision processes, the paper contends that the decision of the insurance industry to not provide protection against environmental pollution liability is due to ambiguity of the risk. Empirical evidence from controlled laboratory experiments with actuaries and a model of choice in underwriter decision processes support this point.

Suggested Citation

  • Howard Kunreuther, 1989. "The Role of Actuaries and Underwriters in Insuring Ambiguous Risks," Risk Analysis, John Wiley & Sons, vol. 9(3), pages 319-328, September.
    • Handle: RePEc:wly:riskan:v:9:y:1989:i:3:p:319-328
    DOI: 10.1111/j.1539-6924.1989.tb00997.x
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    Cited by:

    1. Howard Kunreuther, 2006. "Reflections on U.S. Disaster Insurance Policy for the 21st Century," NBER Working Papers 12449, National Bureau of Economic Research, Inc.
    2. Guillemin, François, 2020. "Governance by depositors, bank runs and ambiguity aversion," Research in International Business and Finance, Elsevier, vol. 54(C).
    3. Jeryl L. Mumpower & Gary McClelland, 2002. "Measurement Error, Skewness, and Risk Analysis: Coping with the Long Tail of the Distribution," Risk Analysis, John Wiley & Sons, vol. 22(2), pages 277-290, April.
    4. Richard J. Butler & Gene Lai, 2023. "Insurance wage-offer disparities by gender: random forest regression and quantile regression evidence from the 2010–2018 American Community Surveys," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 48(2), pages 192-229, September.
    5. Jeryl L. Mumpower, 1991. "Risk, Ambiguity, Insurance, and the Winner's Curse," Risk Analysis, John Wiley & Sons, vol. 11(3), pages 519-522, September.
    6. Sedar Olmez & Akhil Ahmed & Keith Kam & Zhe Feng & Alan Tua, 2023. "Exploring the Dynamics of the Specialty Insurance Market Using a Novel Discrete Event Simulation Framework: a Lloyd's of London Case Study," Papers 2307.05581, arXiv.org.

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