By Martin F. Grace, Robert W. Klein, Paul R. Kleindorfer, Michael R. Murray
1. the matter OF disaster chance the chance of enormous losses from common failures within the U.S. has considerably elevated lately, straining inner most coverage markets and growing problematic difficulties for disaster-prone parts. the specter of mega-catastrophes caused by extreme hurricanes or earthquakes notable significant inhabitants facilities has dramatically altered the coverage setting. Estimates of possible greatest losses (PMLs) to insurers from a mega disaster awesome the U.S. variety as much as $100 billion looking on the positioning and depth of the development (Applied coverage examine, 2001).1 A serious catastrophe can have an important monetary effect at the (Cummins, Doherty, and Lo, 2002; assurance providers workplace, 1996a). Estimates of gross losses from the terrorist assault on September eleven, 2001 variety from $30 billion to $50 billion, and the attack's influence on coverage markets underscores the necessity to comprehend the dynamics of the availability of and the call for for assurance opposed to severe occasions, together with common failures. elevated disaster probability poses tricky demanding situations for insurers, reinsurers, homeowners and public officers (Kleindorfer and Kunreuther, 1999). the basic trouble issues insurers' skill to deal with low-probability, high-consequence (LPHC) occasions, which generates a number of interrelated concerns with admire to how the chance of such occasions are 1 those possible greatest loss (PML) estimates are in response to a SOD-year "return" period.
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Additional resources for Catastrophe Insurance: Consumer Demand, Markets and Regulation
3% 1997 1998 1999 2000 2,149,080 2,203,618 2,292,719 Avg. 1% Comb. Ratio. 8% Avg. M. Best on net basis. M. 3 Florida Loss costs are the most important driver of insurers' overall profitability for most lines of insurance, including homeowners. Hence, analysts look 2. An Overview of Catastrophe Insurance Markets 35 closely at loss ratios as an indicator of rate or premium adequacy in a particular state and line. 7 track changes in loss ratios for the selected states and countrywide over the period 1990-2000.
Insurers and insurance markets are regulated primarily at the state level (Klein, 1998b). Hence, the laws and regulations governing homeowners insurance transactions are set by the individual state legislatures and insurance commissioners, with legal disputes generally adjudicated by state courts. Regulatory policies vary among states based on market conditions, differing regulatory philosophies and political factors. This is evident in the different responses of New York, Florida, and other states to catastrophe insurance problems.
In recent years, regulators also have attempted to restrict exit to some degree, particularly with respect to the personal lines and catastrophe risks. Exit encompasses insurers' efforts to shed some exposures as well as efforts to completely withdraw from one or more lines within a state. Regulators attempt to prevent insurers' withdrawal from a market to maintain the availability of insurance coverage, but these efforts could prove to be counterproductive in the long run if they discourage entry.
Catastrophe Insurance: Consumer Demand, Markets and Regulation by Martin F. Grace, Robert W. Klein, Paul R. Kleindorfer, Michael R. Murray