Catastrophe risk summary and recommended reading

Here is a summary of the various articles I have written concerning public policy in the context of the disastrous hurricane season suffered by the state of Florida:

  • 09.07.04: Financial Implications of Hurricanes – This article provides some insight concerning the evolution of public policy in the post-Andrew world. Because of persistent regulatory suppression of insurance rates, economic theory suggests that over time, product quality will likely deteriorate and insurers can be expected to exit the market. For all practical purposes, this is what has occurred in the Florida homeowners insurance market. Clearly, there has been a shifting of risk away from private insurers and toward government and policyholders. What has resulted is a rather ad hoc set of risk sharing arrangements which no one particularly likes and very few people understand.
  • 09.08.04: Catastrophes and Moral Hazard: The Case of Florida Windstorm Risk – This article explains why public disaster relief, however well intentioned, may make matters worse in the long term by undermining incentives for firms and individuals to select “economically efficient” levels of private insurance and loss mitigation.
  • 09.09.04: The double deductible problem in Florida – Here, you will find my “proposal” concerning policy regulation reform; i.e., why not offer consumers a choice between the status quo policy form and an alternative policy form that enables consumers to insure against aggregate losses? This is a workable reform, assuming that the rate suppression problem can also be properly addressed.
  • 09.10.04: Reinsurance reinstatement option – This article discusses an important contractual issue that is looming in the market for catastrophe reinsurance which may end up being considerably more significant economically than the “double deductible” problem (i.e., given the amount of catastrophe exposure this season, this important aspect of “fine print” may result in quite a few insolvencies).
  • 09.17.04: More on double deductibles – This article argues that in order to “fix” the Florida insurance market, regulatory reform needs to address pricing issues as well as policy forms. Specifically, 1) the rate suppression problem needs to be properly addressed so that rates accurately reflect the expected cost of risk, and 2) consumers ought to have a broader set of choices concerning policy forms.

For people who are interested in reading more about public policy as it pertains to catastrophe risk, I highly recommend two books: 1) Catastrophe Insurance: Consumer Demand, Markets, and Regulation, and 2) When All Else Fails: Government As the Ultimate Risk Manager. Finally, I also highly recommend Martin Grace’s weblog.