Catastrophe Insurance: Consumer Demand, Markets and by Martin F. Grace, Robert W. Klein, Paul R. Kleindorfer,

By Martin F. Grace, Robert W. Klein, Paul R. Kleindorfer, Michael R. Murray

1. the matter OF disaster danger the danger of huge losses from common mess ups within the U.S. has considerably elevated in recent times, straining inner most assurance markets and developing complex difficulties for disaster-prone parts. the specter of mega-catastrophes because of extreme hurricanes or earthquakes notable significant inhabitants facilities has dramatically altered the coverage atmosphere. Estimates of possible greatest losses (PMLs) to insurers from a mega­ disaster impressive the U.S. variety as much as $100 billion counting on the site and depth of the development (Applied assurance learn, 2001).1 A serious catastrophe may have an important monetary influence at the (Cummins, Doherty, and Lo, 2002; coverage companies place of work, 1996a). Estimates of gross losses from the terrorist assault on September eleven, 2001 diversity from $30 billion to $50 billion, and the attack's influence on assurance markets underscores the necessity to comprehend the dynamics of the availability of and the call for for coverage opposed to severe occasions, together with usual failures. elevated disaster possibility poses tough demanding situations for insurers, reinsurers, homeowners and public officers (Kleindorfer and Kunreuther, 1999). the basic trouble matters insurers' skill to deal with low-probability, high-consequence (LPHC) occasions, which generates a number of interrelated matters with appreciate to how the danger of such occasions are 1 those possible greatest loss (PML) estimates are in keeping with a SOD-year "return" period.

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This strategy is understandable when regulators constrain an insurer's attempts to raise prices and adjust its concentration of catastrophe exposures. 3. Regulatory Institutions and Policies 47 on entry and exit could interfere with the market's movement toward an optimal level of risk diversification among insurers. Ideally, as some insurers reduce their excessive concentration of exposures in high-risk areas, other insurers would see opportunities and enter to fill the gap. This process will not guarantee "affordable" rates but it should decrease the "risk premium" that insurers require to cover catastrophe perils.

The Florida Insurance Department collects exposure data by county and by insurer that allow us to assess each insurer's distribution of exposures among Florida counties. For each company, we calculated geographic HHI values based on the percentage of their exposures in each county in 1996 and 2001. 2(b). 2. 6 3500 3000 2500 ~ 2000 1500 1000 . , their HHI values increased). The un-weighted mean HHI (for all insurers) increased from 1,300 to 1,483 and the weighted mean increased from 663 to 712. The mean HHI increased more in the higher quartiles, in both absolute and relative terms.

S. insurers are licensed in at least one state and are subject to solvency and market regulation in their state of domicile and other states in which they are licensed to sell insurance. S. also are subject to the solvency regulation of their domiciliary state. S. S. insurers write certain specialty and high-risk coverages on a non-admitted or surplus lines basis that is not subject to price and product regulation. Insurance commissioners still regulate entry to surplus lines markets by imposing minimum solvency and trust deposit requirements, approving consumer access to surplus lines insurers, and licensing intermediaries who are allowed to broker surplus lines transactions.

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