Corporate Demand for Insurance: New Evidence from the U.S. Terrorism and Property Markets

Erwann Michel-Kerjan, Paul Raschky and Howard Kunreuther

No 19532, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Since the passage of the Terrorism Risk Insurance Act of 2002, corporate terrorism insurance is sold as a separate policy from commercial property coverage. In this paper, we determine whether companies differ in their demand for property and terrorism insurance. Using a unique dataset of insurance policies purchased by large U.S. firms, combined with financial information of the corporate clients and of the insurance provider, we apply a two-stage least squares (2SLS) approach to obtain consistent estimates of premium elasticity of corporate demand for property and terrorism coverage. Our findings suggest that both are rather price inelastic and that corporate demand for terrorism insurance is significantly more price inelastic than demand for property insurance. We further find a negative relation between the solvency ratios of both property and terrorism risk coverage, with a stronger effect on the latter, indicating that companies use their ability to self-insure as a substitute for market insurance. Our results are robust to the application of alternative estimators as well as changes in the econometric specifications.

JEL-codes: G22 H56 (search for similar items in EconPapers)
Date: 2013-10
New Economics Papers: this item is included in nep-ias
Note: PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published as Erwann Michel-Kerjan & Paul Raschky & Howard Kunreuther, 2015. "Corporate Demand for Insurance: New Evidence From the U.S. Terrorism and Property Markets," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 82(3), pages 505-530, 09.

Downloads: (external link)
http://www.nber.org/papers/w19532.pdf (application/pdf)

Related works:
Journal Article: Corporate Demand for Insurance: New Evidence From the U.S. Terrorism and Property Markets (2015)
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:nbr:nberwo:19532

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w19532

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().