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The Catastrophic Effects of Natural Disasters on Insurance Markets


  • W. Kip Viscusi
  • Patricia Born


Natural catastrophes often have catastrophic risks on insurance companies as well as on the insured. Using a very large dataset on homeowners%u2019 insurance coverage by state, by firm, and by year for the 1984 to 2004 period, this paper documents the positive effect on losses and loss ratios of both unexpected catastrophes as well as large events that the authors term %u201Cblockbuster catastrophes.%u201D Insurers adapt to these catastrophic risks by raising insurance rates, leading to lower loss ratios after the catastrophic event. There is a widespread event of unexpected catastrophes and blockbuster catastrophes that reduces total premiums earned in the state, reduces the total number writing insurance coverage in the state, and leads to the exit of firms from the state. Firms with low levels of homeowners%u2019 premiums are most adversely affected by the catastrophes.

Suggested Citation

  • W. Kip Viscusi & Patricia Born, 2006. "The Catastrophic Effects of Natural Disasters on Insurance Markets," NBER Working Papers 12348, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:12348
    Note: HC LE

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    References listed on IDEAS

    1. Richard Zeckhauser, 1995. "Insurance and catastrophes," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 20(2), pages 157-175, December.
    2. Born, Patricia H, 2001. "Insurer Profitability in Different Regulatory and Legal Environments," Journal of Regulatory Economics, Springer, vol. 19(3), pages 211-237, July.
    3. Martin F. Grace & Robert W. Klein & Paul R. Kleindorfer, 2004. "Homeowners Insurance With Bundled Catastrophe Coverage," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 71(3), pages 351-379.
    4. Viscusi, W Kip, 1993. "The Risky Business of Insurance Pricing," Journal of Risk and Uncertainty, Springer, vol. 7(1), pages 117-139, August.
    5. Christian Gollier, 1997. "About the Insurability of Catastrophic Risks*," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 22(2), pages 177-186, April.
    6. Patricia Born & William M. Gentry & W. Kip Viscusi & Richard J. Zeckhauser, 1998. "Organizational Form and Insurance Company Performance: Stocks versus Mutuals," NBER Chapters,in: The Economics of Property-Casualty Insurance, pages 167-192 National Bureau of Economic Research, Inc.
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    Cited by:

    1. Poontirakul, Porntida & Brown, Charlotte & Noy, Ilan & Seville, Erica & Vargo, John, 2016. "The role of commercial insurance in post-disaster recovery: Quantitative evidence from the 2011 Christchurch earthquake," Working Paper Series 4980, Victoria University of Wellington, School of Economics and Finance.
    2. Kevin S. Markle & Douglas A. Shackelford, 2011. "Cross-Country Comparisons of Corporate Income Taxes," NBER Working Papers 16839, National Bureau of Economic Research, Inc.
    3. repec:pal:gpprii:v:42:y:2017:i:2:d:10.1057_s41288-016-0004-5 is not listed on IDEAS
    4. W. Viscusi & Richard Zeckhauser, 2006. "National survey evidence on disasters and relief: Risk beliefs, self-interest, and compassion," Journal of Risk and Uncertainty, Springer, vol. 33(1), pages 13-36, September.
    5. Radoslav Raykov, 2015. "Catastrophe insurance equilibrium with correlated claims," Theory and Decision, Springer, vol. 78(1), pages 89-115, January.
    6. repec:bla:jrinsu:v:84:y:2017:i:2:p:567-597 is not listed on IDEAS
    7. repec:eee:riibaf:v:42:y:2017:i:c:p:1394-1400 is not listed on IDEAS
    8. Antonio Coviello & Giovanni Di Trapani, 2013. "Supply Risk Management: Mitigation Strategy," The International Journal of Economic Behavior - IJEB, Faculty of Business and Administration, University of Bucharest, vol. 3(1), pages 169-176, December.
    9. Darrell Duffie & Bruno Strulovici, 2012. "Capital Mobility and Asset Pricing," Econometrica, Econometric Society, vol. 80(6), pages 2469-2509, November.
    10. Ning Wang & Yiling Deng, 2016. "Market responses to loss shocks and insurers' post-catastrophe performance in the US property-casualty insurance market," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 11(3), pages 231-246.
    11. Patricia H. Born & Barbara Klimaszewski-Blettner, 2013. "Should I Stay or Should I Go? The Impact of Natural Disasters and Regulation on U.S. Property Insurers’ Supply Decisions," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 80(1), pages 1-36, March.
    12. Jacqueline Volkman-Wise, 2015. "Representativeness and managing catastrophe risk," Journal of Risk and Uncertainty, Springer, vol. 51(3), pages 267-290, December.
    13. Abdel-Raheem F. Fares & Eid Ahmad Abou-Bakr, 2012. "Economics of Insurance against Natural Catastrophes: Over-Burdened Arab Insurers," Review of Economics & Finance, Better Advances Press, Canada, vol. 2, pages 95-105, August.

    More about this item

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics

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