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Disaster Insurance or a Disastrous Insurance – Natural Disaster Insurance in France

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  • Mario Jametti
  • Thomas von Ungern-Sternberg

Abstract

We model natural disaster insurance in France. We explicitly take into account the main institutional features of the system, such as the uniform premium rate in both high and low risk regions and the existence of a state reinsurance company. Our model indicates that the institutional set-up is fundamentally flawed. We find that the market is likely to lead to “specialist” equilibria, where insurers specialize in serving either high or low risk regions. As a result the reinsurance company, which offers cover to all insurers at the same price, is likely to suffer from a portfolio with mainly “bad” risks. We show that increasing the premium rate customers have to pay, a policy undertaken by the French authorities, will not necessarily solve these problems and comes at a high cost to the final consumer (and taxpayer).

Suggested Citation

  • Mario Jametti & Thomas von Ungern-Sternberg, 2004. "Disaster Insurance or a Disastrous Insurance – Natural Disaster Insurance in France," CESifo Working Paper Series 1303, CESifo.
    • Handle: RePEc:ces:ceswps:_1303
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    References listed on IDEAS

    as
    1. Dwight M. Jaffee & Thomas Russell, 1996. "Catastrophe Insurance, Capital Markets and Uninsurable Risks," Center for Financial Institutions Working Papers 96-12, Wharton School Center for Financial Institutions, University of Pennsylvania.
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    Cited by:

    1. Mario Jametti & Thomas von Ungern-Sternberg, 2006. "Risk Selection in Natural Disaster Insurance - the Case of France," Working Papers 2006_1, York University, Department of Economics.
    2. Franco Mariuzzo & Patrick Paul Walsh & Ciara Whelan, 2004. "EU Merger Control in Differentiated Product Industries," CESifo Working Paper Series 1312, CESifo.
    3. Franz Sinabell & Thomas Url, 2006. "Versicherungen als effizientes Mittel zur Risikotragung von Naturgefahren," WIFO Studies, WIFO, number 28181, March.
    4. Mario Jametti & Thomas von Ungern-Sternberg, 2010. "Risk Selection in Natural-Disaster Insurance," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 166(2), pages 344-364, June.
    5. Mario Jametti & Thomas von Ungern-Sternberg, 2010. "Risk Selection in Natural-Disaster Insurance," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 166(2), pages 344-364, June.

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    More about this item

    Keywords

    property insurance; reinsurance; risk selection;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation

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