Risk Selection in Natural Disaster Insurance -The Case of France

Mario Jametti () and von Ungern-Sternberg, Thomas

Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) from Université de Lausanne, Faculté des HEC, DEEP

Abstract: It is widely recognized that "market failure" prevents efficient risk sharing in natural disaster insurance. As a consequence, many countries adopted institutional frameworks presenting public sector participation, often praised as public-private partnerships. We define risk selection as a situation where private companies pass insurance of high risk agents on to the public "partner", arguing that this is a potentially important issue in such situations. In order to illustrate our concerns we look at the case of France. We build a simple model that incorporates the main features of the system, such as the uniform premium rate in both high and low risk regions and the existence of a state reinsurer. We show that in our model, risk selection is likely to be present at equilibrium and discuss the policy options available. When comparing with the actual situation in France we find that the "stylized facts" of the system correspond to our results. Additionally, the policies implemented by the government correspond to policies characterized to reduce the potential of risk selection.

Keywords: risk selection; property insurance; reinsurance; France (search for similar items in EconPapers)
JEL-codes: G22 L11 Q54 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin and nep-ias
Date: Written 2006-02
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Related works:
Working Paper: Risk Selection in Natural Disaster Insurance - the Case of France (2006)
Working Paper: Risk Selection in Natural Disaster Insurance – the Case of France (2006)
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