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, a situation where the public partner insures the majority of high risk agents, is potentially an important issue. To illustrate our concerns we build a simple model of reinsurance in a natural disaster insurance market. We show that risk selection is a likely equilibrium outcome and discuss the policy options available. The model is based on the French institutional setup and describes well the stylized facts. The policies implemented by the French government correspond to the ones we identify to alleviate risk selection. We also present two alternative public-private partnership setting that deal effectively with risk selection; hurricane insurance in Florida and catastrophe insurance in Spain.
|Date of creation:||2009|
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- Mario Jametti & Thomas von Ungern-Sternberg, 2004.
"Disaster Insurance or a Disastrous Insurance – Natural Disaster Insurance in France,"
CESifo Working Paper Series
1303, CESifo Group Munich.
- Mario Jametti & Thomas von Ungern-Sternberg, 2004. "Disaster Insurance or a Disastrous Insturance - Natural Disaster Insurance in France," Department of Economics Working Papers 2004-13, McMaster University.
- 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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- Mario Jametti & Thomas von Ungern-Sternberg, 2009. "Hurricane Insurance in Florida," Quaderni della facoltà di Scienze economiche dell'Università di Lugano 0905, USI Università della Svizzera italiana.
- Mario Jametti & Thomas von Ungern-Sternberg, 2009. "Hurricane Insurance in Florida," CESifo Working Paper Series 2768, CESifo Group Munich.
- Thomas von Ungern-Sternberg, 2009. "Hurricane Insurance in Florida," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 09.01, Université de Lausanne, Faculté des HEC, DEEP.
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