Feasibility of Long-Term Interest Balance among Stakeholders in the Natural Catastrophe Insurance Market

Ning Zhang, Yang-Che Wu and Wan-Shiou Yang

North American Actuarial Journal, 2021, vol. 25, issue 2, 163-185

Abstract: This study establishes a stakeholder framework in the natural catastrophe insurance market: Insurers charge policyholders the full insurance premium and pay the public catastrophe insurance scheme (PCIS) contributions for the contingent bailout. The government subsidizes policyholders and taxes insurers. Then a series of accounting procedures is developed to illustrate how the stakeholders’ cash flows change. A numerical analysis reveals that both the PCIS and the subsidy policy can achieve long-term self-financing under special tax rates, contribution rates, and subsidy conditions. The results show that the short-term inequity of favoring insurers and policyholders can promote balanced long-term interests for all stakeholders.

Date: 2021
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DOI: 10.1080/10920277.2019.1705169

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