The Development of New Catastrophe Risk Markets

Howard C. Kunreuther and Erwann Michel-Kerjan

Annual Review of Resource Economics, 2009, vol. 1, issue 1, 119-137

Abstract: The large-scale disasters that have occurred since 2001 suggest that we have entered a new era of catastrophes. We are more vulnerable to extreme events as a result of the increasing concentration of population and activities in exposed areas of the country. The question is not whether large-scale catastrophe will occur, but when and how frequently they will strike. One key question is, Who will pay for the economic losses future disasters will inflict? This paper discusses how new catastrophe risk markets can be developed to provide the necessary financial coverage to make our country more resilient. We look specifically at insurance-linked financial instruments to complement traditional insurance and reinsurance. We also propose the development of long-term insurance and long-term loans to overcome behavioral biases such as myopia and misperception of risks. The paper concludes by proposing risk management strategies that apply to other extreme events such as the financial crisis of 2008–2009.

Keywords: extreme events; mitigation; alternative risk transfer instruments; long-term insurance (search for similar items in EconPapers)
JEL-codes: G01 G13 G22 Q54 (search for similar items in EconPapers)
Date: 2009
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.annualreviews.org/doi/abs/10.1146/annurev.resource.050708.144302 (application/pdf)
Full text downloads are only available to subscribers. Visit the abstract page for more information.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:anr:reseco:v:1:y:2009:p:119-137

Ordering information: This journal article can be ordered from
http://www.annualreviews.org/action/ecommerce

Access Statistics for this article

More articles in Annual Review of Resource Economics from Annual Reviews Annual Reviews 4139 El Camino Way Palo Alto, CA 94306, USA.
Bibliographic data for series maintained by http://www.annualreviews.org ().