California earthquake insurance unpopularity: the issue is the price, not the risk perception

Pothon, Adrien; Guéguen, Philippe; Buisine, Sylvain; Bard, Pierre Yves

doi:10.5194/nhess-19-1909-2019

Cited by 12 publications

(8 citation statements)

References 21 publications

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“…To see how this works, consider the prospect of a California earthquake. Assume that 16% of home insurance includes earthquake coverage (neglecting deductibles, see Marshall ( 2017 ) and Pothon et al ( 2019 )) 8 and that 50% of any insured losses are reinsured abroad. 9 In the US case, the warranted international reinsurance rate is about 80% (i.e., s*= 100% —US GDP share (20%), so that prospective international risk-sharing of 8% (i.e., would imply a gap of 72% (i.e., ).…”

Section: Decomposition Of International Risk-sharing Of Disastersmentioning

confidence: 99%

A Disaster Under-(Re)Insurance Puzzle: Home Bias in Disaster Risk-Bearing

Ito

McCauley

2022

IMF Econ Rev

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We examine disaster reinsurance from the perspective of international risk-sharing. We find that losses from disasters are shared internationally to a generally very limited extent, unlike what the theory of international risk-sharing suggests. We propose a new dataset of cross-border reinsurance payments for 93 disasters of 44 economies in 1982–2017. Combining these balance of payments data with industry data, we find that the lack of disaster risk-sharing through international reinsurance results from low participation in primary insurance as well as limited use of reinsurance. Regression analysis finds that countries with higher levels of economic or financial development tend to insure a larger share of disaster losses while proxies for disaster myopia are associated with less insurance. Regarding the share of insured losses that is internationally reinsured, small size and de facto financial integration tend to raise the reinsurance share, while high levels of external wealth and low foreign firm presence in insurance are associated with less reinsurance. Advanced economies with little fiscal space that provide ex-post government disaster insurance without international reinsurance could experience disaster risk morphing into financial risk.

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Section: Decomposition Of International Risk-sharing Of Disastersmentioning

confidence: 99%

A Disaster Under-(Re)Insurance Puzzle: Home Bias in Disaster Risk-Bearing

Ito

McCauley

2022

IMF Econ Rev

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“…CEA also implements incentive actions to mitigate seismic risk by providing, for example, a reduction in the insurance premium of not less than 5% of the annual premium or also by carrying out lobbying actions with stakeholders for the approval of laws aimed at favouring the mitigation of seismic risk. As regards the policy's adoption, recently higher levels of policy sales have been recorded [17] even though the state-wide adoption rates for residential earthquake policies has never exceeded 16%, probably due to the high premium [19].…”

Section: Different National Experiencesmentioning

confidence: 99%

Building a Natural Hazard Insurance System (NHIS): The Long-lasting Italian Case

2021

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The worrying growth of extreme natural events and their socioeconomic impact over time is increasingly fuelling the debate on how to manage disasters in view of developing resilient and sustainable societies. One possible financial tool may be represented by insurance against natural hazards, such as earthquakes, floods, and landslides. From this perspective, the current article considers legislative attempts to build a Natural Hazard Insurance System (NHIS) in Italy. The (never promulgated) bills proposed over a time span of about 30 years were analysed by: (a) A text-mining technique, considering the extraction of relevant data for the research; (b) the careful reading of the texts and their cross-correlated critical analysis. Approximately forty bills have been proposed since the 1980s and they mainly concern the proposal of an NHIS based on a certain degree of compulsoriness (the voluntary system is contemplated only on a subordinate basis). Two possible main hurdles to the promulgation of such laws were inferred: the insurance scheme to be adopted and the issue of illegal buildings. Furthermore, the item of natural hazard risk perception was a factor not adequately considered by the bills. Based on the critical scrutiny of the bills and taking advantage of international experiences, the establishment of a voluntary national scheme managed by a public authority with specific competences on NHIS is proposed.

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“…In these circumstances, looking for other effective solutions is mandatory. For example, the parametric solution is considered in California for increasing the penetration for dwellings against earthquake risk (Pothon et al 2019). Taking all these into account, efforts are being made to find solutions to implement a plan to handle claims in the event of a major disaster, aimed at taking uniform action and streamlining the resources pooled by all insurance companies in Romania, but this plan is far from being realized.…”

Section: The Opportunity To Introduce Parametric Insurance In Romaniamentioning

confidence: 99%

Parametric Insurance—A Possible and Necessary Solution to Insure the Earthquake Risk of Romania

Radu

Alexandru

2022

Risks

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The rapid growth over recent decades of the impact of natural disasters on economies, especially in vulnerable areas, urges stakeholders to promote innovative solutions involving risk transfers that account for the new risk exposures. These proposed solutions are designed to optimize and expedite the indemnification process, which can ultimately be beneficial for both policyholders and insurers alike. This article explores the possibility of supplementing the current Romanian dwelling insurance protection scheme with a parametric mechanism. To determine the triggering parameter of the insurance pay-out, the authors consider various hazard scenarios developed based on historical events. This paper focuses on Probable Maximum Loss (PML) determination computed for events with epicenters in the Vrancea (a region and a mountain in the Carpathians) seismic area. This area is the most exposed in Romania to earthquakes, and it includes the capital, Bucharest, which is the urban area with the highest population concentration and, consequently, the highest exposure to the discussed risks.

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California earthquake insurance unpopularity: the issue is the price, not the risk perception

Cited by 12 publications

References 21 publications

A Disaster Under-(Re)Insurance Puzzle: Home Bias in Disaster Risk-Bearing

A Disaster Under-(Re)Insurance Puzzle: Home Bias in Disaster Risk-Bearing

Building a Natural Hazard Insurance System (NHIS): The Long-lasting Italian Case

Parametric Insurance—A Possible and Necessary Solution to Insure the Earthquake Risk of Romania

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