Natural Disasters and the Financing of Fat Tails: Lessons from the Economics and Political Economy of Weather-Related Insurance
16 Pages Posted: 14 Apr 2013
Date Written: April 12, 2013
Abstract
Three hypotheses are explored related to state-run residual insurance markets in weather-related insurance. First, that private insurers, having already exited flood insurance markets in 1968, are currently well into the process of leaving private wind related coverage because of storm-related losses viewed as unprofitable at currently allowed rates and/or as uninsurable. Second, that as state-centered residual risk entities have replaced private insurers, there is no unified strategy among these entities as to the financial sustainability of the residual risk pools. Third, that although both private insurers and residual risk pools could improve the risk landscape by actively championing measures to retrofit existing homes, they are not doing so.
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