Systemic Risk, Reinsurance, and the Failure of Crop Insurance Markets

Miranda, Mario J.; Glauber, Joseph W.

doi:10.2307/1243954

Cited by 297 publications

(175 citation statements)

References 9 publications

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“…insurance for the insurance company) when dealing with risks that have systemic characteristics. However, recent developments in capital markets provide opportunities to enlarge the reinsurance capacity (Miranda and Glauber 1997). Partnerships between the public and private sectors may furthermore attract some financial involvement from government.…”

Section: Discussionmentioning

confidence: 99%

Economics of controlling avian influenza epidemics

Asseldonk¹,

Meuwissen²,

Mourits³

et al. 2005

Avian Influenza

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Livestock epidemics like avian influenza (AI) may inevitably affect many farms at the same time, causing severe economic losses for governments, farmers and all other participants of the poultry production chain. This paper gives an overview of the various economic consequences incurred by AI epidemics. The funding of these losses is discussed, making a distinction between the compensation currently regulated by the EU or national government and the additional financing possibilities by means of insurance or co-financing systems. A general economic analysis is performed to explore the required level of insurance or co-financing rates for the various EU member states to cover the expected AI losses. The level of rates turned out to vary widely among the individual EU countries.

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Section: Discussionmentioning

confidence: 99%

Economics of controlling avian influenza epidemics

Asseldonk¹,

Meuwissen²,

Mourits³

et al. 2005

Avian Influenza

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“…Drought risk is a striking example for a peril that affects most if not all farmers in a whole region. Miranda and Glauber (1997) argue that the existence of systemic weather risk constitutes the main reason for the failure of private crop insurance markets unless efficient and affordable instruments for transferring this risk are available. This conjecture is based on the observation that existing crop insurance programs including drought risk are either subsidized (e.g.…”

Section: Introductionmentioning

confidence: 99%

On the systemic nature of weather risk

Filler

Odening

et al. 2010

Agricultural Finance Review

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Systemic weather risk is a major obstacle for the formation of private (nonsubsidized) crop insurance. This paper explores the possibility of spatial diversification of insurance by estimating the joint occurrence of unfavorable weather conditions in different locations. For that purpose copula methods are employed that allow an adequate description of stochastic dependencies between multivariate random variables. The estimation procedure is applied to weather data in Germany. Our results indicate that indemnity payments based on temperature as well as on cumulative rainfall show strong stochastic dependence even at a national scale. Thus the possibility to reduce risk exposure by increasing the trading area of the insurance is limited. Irrespective of their economic implications our results pinpoint the necessity of a proper statistical modeling of the dependence structure of multivariate random variables. The usual approach of measuring stochastic dependence with linear correlation coefficients turned out to be questionable in the context of weather insurance as it may overestimate diversification effects considerably.

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“…For example, there is a potential link between flooding events and mental health and depression (Few, Ahern, Matthies, and Kovats, 2004) which in turn will be covered by life and in-work insurance policies. Weather events that impact food production can have far ranging insurance impacts because of the global interconnected nature of markets (Miranda & Glauber, 1997;Xu, Filler, Odening & Okhrin, 2010;Goodwin & Hungerford, 2015).…”

Section: A C C E P T E D Accepted Manuscriptmentioning

confidence: 99%

Voluntary business engagement in climate change: A study of the ClimateWise principles

Jones

Phillips

2016

Journal of Cleaner Production

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There is an expectation that the insurance sector should be leading business efforts in responding to climate change due to their inherent exposure to increasing risks. However, insurance companies normally operate on a one year time horizonunderwriting risks through policies which change each year to reflect new knowledge of these risks. The ClimateWise principles is a voluntary initiative of the insurance sector that was launched in 2007 to provide a basis for insurance companies to engage with climate change risks. This paper introduces the ClimateWise initiative and explores progress made since its launch. The paper presents new knowledge on whether this voluntary initiative provides a useful structure for the insurance sector in responding to the challenge of climate change. It finds that while the insurance sector has engaged with climate change, there is much more to do and we welcome the recent changes to ClimateWise that more accurately reflect this. The paper concludes that ClimateWise has been a useful initiative for the insurance companies and as a potential benchmark for the sector it offers some value. However, ClimateWise has not provided a strong enough engagement across the sector to embed climate action into business decisions.

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Systemic Risk, Reinsurance, and the Failure of Crop Insurance Markets

Cited by 297 publications

References 9 publications

Economics of controlling avian influenza epidemics

Economics of controlling avian influenza epidemics

On the systemic nature of weather risk

Voluntary business engagement in climate change: A study of the ClimateWise principles

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