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Corporate Management of Highly Dynamic Risks: Evidence from the Demand for Terrorism Insurance in Germany

Author

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  • Christian Thomann

    (Institute for Risk and Insurance, Leibniz Universit&aauml;t Hannover, Königsworther Platz 1, Hannover 30167, Germany.
    Ministry of Finance, Financial Institutions and Markets, Stockholm S-103 33, Sweden)

  • Razvan Pascalau

    (Department of Economics and Finance, SUNY Plattsburgh, 101 Broad Street, Redcay Hall 124, Plattsburgh, NY, 12901, U.S)

  • J.-Matthias Graf von der Schulenburg

    (Institute for Risk and Insurance, Leibniz Universit&aauml;t Hannover, Königsworther Platz 1, Hannover 30167, Germany.)

Abstract

This paper investigates a corporation's risk management response to highly dynamic risks. Using a unique data set on the German terrorist insurance market, the paper tests whether corporate risk managers have a clear understanding of the probability distribution of highly dynamic risks or if risk managers learn from severe losses and base their decisions upon day-to-day experience. The paper further investigates whether risk managers become more confident in their risk management decisions over time. For this purpose, we apply Viscusi's prospective reference theory to a corporate context. We find that firms learn from single events when making their risk management decisions, and that risk managers become more confident with their risk management decisions over time.

Suggested Citation

  • Christian Thomann & Razvan Pascalau & J.-Matthias Graf von der Schulenburg, 2012. "Corporate Management of Highly Dynamic Risks: Evidence from the Demand for Terrorism Insurance in Germany," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 37(1), pages 57-82, March.
    • Handle: RePEc:pal:genrir:v:37:y:2012:i:1:p:57-82
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    Cited by:

    1. Jean-François Outreville, 2014. "The Meaning of Risk? Insights from The Geneva Risk and Insurance Review," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 39(4), pages 768-781, October.
    2. Simone Krummaker, 2019. "Firm's demand for insurance: An explorative approach," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 22(3), pages 279-301, September.
    3. Christian Biener & Martin Eling, 2013. "Recent Research Developments Affecting Nonlife Insurance—The CAS Risk Premium Project 2012 Update," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 16(2), pages 219-231, September.

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