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Corporate Demand for Insurance: An Empirical Analysis of the U.S. Market for Catastrophe and Non-Catastrophe Risks

Author

Listed:
  • Erwann Michel-Kerjan

  • Paul A. Raschky

  • Howard C. Kunreuther

Abstract

This paper tests some existing theories developed over the past 25 years on corporate demand for insurance. Using a unique dataset of 1,809 large U.S. corporations it provides the first empirical analysis that compares corporate demand for standard property insurance and for catastrophe coverage (here, terrorism). We find that larger companies are more likely to have some catastrophe coverage. Corporate demand for catastrophe insurance is found to be more price inelastic than insurance for non-catastrophe risks. This result differs from the findings on individual demand for insurance. The terrorism insurance premium per dollar of coverage is twice as high in the New York Metropolitan area than in the rest of the U.S. Yet the price elasticity of the demand for terrorism insurance is half in this area relative to the rest of the country.

Suggested Citation

  • Erwann Michel-Kerjan & Paul A. Raschky & Howard C. Kunreuther, 2009. "Corporate Demand for Insurance: An Empirical Analysis of the U.S. Market for Catastrophe and Non-Catastrophe Risks," Working Papers 2009-10, Faculty of Economics and Statistics, Universität Innsbruck.
    • Handle: RePEc:inn:wpaper:2009-10
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    Cited by:

    1. Adachi, Daisuke & Nakata, Hiroyuki & Sawada, Yasuyuki & Sekiguchi, Kunio, 2023. "Adverse selection and moral hazard in corporate insurance markets: Evidence from the 2011 Thailand floods," Journal of Economic Behavior & Organization, Elsevier, vol. 205(C), pages 376-386.
    2. J. François Outreville, 2011. "The relationship between insurance growth and economic development - 80 empirical papers for a review of the literature," ICER Working Papers 12-2011, ICER - International Centre for Economic Research.
    3. J. François Outreville, 2013. "The Relationship Between Insurance and Economic Development: 85 Empirical Papers for a Review of the Literature," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 16(1), pages 71-122, March.

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    Keywords

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    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War

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