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Earthquake Insurance Subscription Rates and Regional Cross-Subsidies

In: Housing Markets and Household Behavior in Japan

Author

Listed:
  • Miki Seko

    (Musashino University)

Abstract

A theoretical framework and empirical evidence are presented to show the connection between community uniform ratingCommunity uniform rating and cross-subsidies in earthquake insurance policy in Japan. Cross-subsidies are defined as the difference between a fair actuarial premiumFair actuarial premium and the community uniform rate. The estimation result shows that the uniform community rating may unintentionally cross-subsidize inhabitants in high-risk areas at the expense of inhabitants in low-risk areas. Our simulation results indicate that replacing the current community rating with the fair actuarial premium would increase the overall subscription rate for earthquake insurance by about 3.7 percentage points, and that the increase is particularly prominent in relatively less risky areas. We propose modifying the Japanese earthquake insurance system by adopting a more refined risk-rating systemRisk-rating system that more closely reflects regional differences in earthquake riskRegional differences in earthquake risk .

Suggested Citation

  • Miki Seko, 2019. "Earthquake Insurance Subscription Rates and Regional Cross-Subsidies," Advances in Japanese Business and Economics, in: Housing Markets and Household Behavior in Japan, chapter 0, pages 209-227, Springer.
    • Handle: RePEc:spr:advchp:978-981-13-3369-9_11
    DOI: 10.1007/978-981-13-3369-9_11
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