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Risk Selection in Natural Disaster Insurance - the Case of France

  • Mario Jametti


    (Department of Economics, York University)

  • Thomas von Ungern-Sternberg

    (HEC Lausanne, Switzerland, and CESifo)

It is widely recognized that “market failure” prevents e¢ cient risk sharing in natural disaster insurance. As a consequence, many countries adopted institutional frameworks involving public-private partnerships”. We de…ne risk selection as a situation where private companies pass insurance of high risk agents on to the public sector. We argue that this is a potentially important issue in such partnerships, illustrating our concerns with the case of France. We build a simple model that incorporates the main features of the system, such as the risk independent premium rate and the existence of a state reinsurer. We show that in our model, risk selection is likely to be present in equilibrium and discuss the policy options available. We …nd that the "stylized facts" of the French system correspond to our results. Additionally, the policies implemented by the gvernment correspond to policies characterized to reduce the potential of risk selection.

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Paper provided by York University, Department of Economics in its series Working Papers with number 2006_1.

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Length: 20 pages
Date of creation: Oct 2006
Date of revision:
Handle: RePEc:yca:wpaper:2006_1
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  1. Yujing Shen & Randall P. Ellis, 2002. "How profitable is risk selection? A comparison of four risk adjustment models," Health Economics, John Wiley & Sons, Ltd., vol. 11(2), pages 165-174.
  2. Christian Gollier, 2005. "Some Aspects of the Economics of Catastrophe Risk Insurance," CESifo Working Paper Series 1409, CESifo Group Munich.
  3. Sean Nicholson & Kate Bundorf & Rebecca M. Stein & Daniel Polsky, 2003. "The Magnitude and Nature of Risk Selection in Employer-Sponsored Health Plans," NBER Working Papers 9937, National Bureau of Economic Research, Inc.
  4. 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.
  5. Daniel Polsky & Sean Nicholson, 2004. "Why Are Managed Care Plans Less Expensive: Risk Selection, Utilization, or Reimbursement?," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 71(1), pages 21-40.
  6. Dwight M. Jaffee & Thomas Russell, 1996. "Catastrophe Insurance, Capital Markets and Uninsurable Risks," Center for Financial Institutions Working Papers 96-12, Wharton School Center for Financial Institutions, University of Pennsylvania.
  7. Joseph P. Newhouse, 1996. "Reimbursing Health Plans and Health Providers: Efficiency in Production versus Selection," Journal of Economic Literature, American Economic Association, vol. 34(3), pages 1236-1263, September.
  8. Lehmann, Hansjorg & Zweifel, Peter, 2004. "Innovation and risk selection in deregulated social health insurance," Journal of Health Economics, Elsevier, vol. 23(5), pages 997-1012, September.
  9. Frame, David E., 2001. "Insurance and Community Welfare," Journal of Urban Economics, Elsevier, vol. 49(2), pages 267-284, March.
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