By Howard Kunreuther, Sr. Richard J. Roth
ISBN-10: 0309063612
ISBN-13: 9780309063616
This publication considers the effectiveness of insurance for low-probability, high-consequence occasions resembling ordinary disasters--and how assurance courses can effectively be used with different coverage instruments, similar to construction codes and criteria, to motivate potent loss aid measures.
The authors speak about the explanations for the dramatic elevate in insured losses from common mess ups considering that 1989 and the fear that insurers have approximately their skill to supply assurance opposed to extra such occasions sooner or later. It addresses why there was an expanding call for for dangers coverage, what varieties of insurance deepest insurers are keen to provide, and the function of reinsurance and private-/public-sector tasks on the nation and federal degrees for supplying security to sufferers of average disasters.
unique case reviews of the demanding situations dealing with Florida within the wake of storm Andrew in 1992 and California following the Northridge earthquake in 1994 demonstrate the demanding situations dealing with the assurance in addition to different involved stakeholders. The nationwide Flood assurance software illustrates how a public-/private-sector partnership can mitigate damages and supply monetary safety to sufferers. The publication identifies new tasks for decreasing destiny losses and offering money for restoration via cooperation via the suitable parties.
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Additional resources for Paying the Price: The Status and Role of Insurance Against Natural Disasters in the United States
Example text
In an extreme case, the poor risks will be the only purchasers of coverage, and the insurer will lose money on each policy sold. This situation, referred to as adverse selection, occurs when the insurer cannot distinguish between the probability of a loss for goodand poor-risk categories. The assumption underlying adverse selection is that purchasers of insurance have an informational advantage by knowing their risk type. Insurers, on the other hand, must invest considerable expense to collect Insurability Conditions and the Supply of Coverage 35 information to distinguish between risks.
1, and L = $100. The actuarial loss for each policy is $10. 9. 9). 9). The expected loss for both the correlated and uncorrelated risks is $20. 1 × $200 = $20. ] However, the variance will always be higher for correlated than uncorrelated risks if each has the same expected loss. Thus, risk-averse insurers will always want to charge a higher premium for the correlated risk. Insurability Conditions and Demand for Coverage The above discussion suggests that in theory insurers can offer protection against any risk that they can identify, and for which they can obtain information to estimate the frequency and magnitude of potential losses, as long as they have the freedom to set premiums at any level.
Chapter 6 reviews the changes in the National Flood Insurance Program since its establishment as a federal program in 1968 and describes its current status. Chapter 7 examines the role that insurance and mitigation can jointly play in reducing future losses. It gives special emphasis to building codes 14 Paying the Price Chapter 1 Introduction Chapter 2 Insurability Issues and the Supply of Coverage Chapter 3 Demand for Disaster Insurance: Residential Coverage Chapter 4 Earthquake Insurance Protection in California Chapter 5 Hurricane Insurance Protection in Florida Chapter 6 The National Flood Insurance Program Chapter 8 Regulation and Catastrophe Insurance Chapter 7 Mitigation and Insurance Chapter 9 A Program for Reducing Disaster Losses Through Insurance Appendix A Commercial Insurance Appendix B Evaluating Models of Risk from Natural Hazards Glossary FIGURE 1-3 Road map for this book.