Disaster Insurance or a Disastrous Insurance - Natural Disaster Insurance in France

Mario Jametti () and Thomas von Ungern-Sternberg

Cahiers de Recherches Economiques du Département d'économie from Université de Lausanne, Faculté des HEC, Département d’économie

Abstract: We model natural disaster insurance in France. We explicitly take into account the main institutional features of the system, such as the uniform premium rate in both high and low risk regions and the existence of a state reinsurance company. Our model indicates that the institutional set-up is fundamentally flawed. We find that the market is likely to lead to "specialist" equilibria, where insurers specialize in serving either high or low risk regions. As a result the reinsurance company, which offers cover to all insurers at the same price, is likely to suffer from a portfolio with mainly "bad" risks. We show that increasing the premium rate customers have to pay, a policy undertaken by the French authorities, will not necessarily solve these problems and comes at a high cost to the final consumer (and taxpayer).

Keywords: property insurance; reinsurance; risk selection (search for similar items in EconPapers)
JEL-codes: D78 G22 L11 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2004-08
New Economics Papers: this item is included in nep-agr and nep-ias
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Working Paper: Disaster Insurance or a Disastrous Insurance – Natural Disaster Insurance in France (2004)
Working Paper: Disaster Insurance or a Disastrous Insturance - Natural Disaster Insurance in France (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:lau:crdeep:04.12

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