Property Insurance Market Research Articles

An Examination of Adverse Selection in the Public Provision of Insurance

Using a unique data set from Florida's residual property insurer, we test for adverse selection in the public provision of homeowners’ insurance in Florida. We find a significant relationship between the losses and deductible choices of insureds in Florida's residual homeowners’ insurance market. This relationship provides strong evidence of the existence of an adverse selection problem in Florida's residual property insurance market. While this relationship is important to Florida regulators (and taxpayers) specifically, a finding of an adverse selection problem in residual markets in general has implications more broadly for government providers of insurance as an adverse selection problem in these settings will impact the public policy debates and decisions involving these markets.

Price game and chaos control among three oligarchs with different rationalities in property insurance market

Combining with the actual competition in Chinese property insurance market and assuming that the property insurance companies take the marginal utility maximization as the basis of decision-making when they play price games, we first established the price game model with three oligarchs who have different rationalities. Then, we discussed the existence and stability of equilibrium points. Third, we studied the theoretical value of Lyapunov exponent at Nash equilibrium point and its change process with the main parameters' changes though having numerical simulation for the system such as the bifurcation, chaos attractors, and so on. Finally, we analyzed the influences which the changes of different parameters have on the profits and utilities of oligarchs and their corresponding competition advantage. Based on this, we used the variable feedback control method to control the chaos of the system and stabilized the chaos state to Nash equilibrium point again. The results have significant theoretical and practical application value.

Research on the price game model for four oligarchs with different decision rules and its chaos control

Based on the actual competition in the Chinese property insurance market, the repeated price game model for four oligarchs with different decision rules is built. On the basis of analyzing the stabilities of eight fixed points about the four-dimensional dynamic system, the Nash equilibrium and its local stable region are discussed mainly. Then the complexity of the four-dimensional discrete dynamic system and its evolutionary process are studied. Finally, the delay feedback control method is used to control the chaos. Numerical simulation results have shown that the influence which the change of price adjustment speed has on the movement of dynamic system has a sensitive dependence on the initial conditions, and there is a strong connection between the profit of each oligarch and the price adjustment speed or the control parameters, and the corresponding economic explanation to those phenomena will have important reference values to the realistic problems.

Are Territorial Rating Models Outdated in Residential Property Insurance Markets? Evidence From the Florida Property Insurance Market

AbstractThe fundamental shift in rating methodology from historical loss costs to catastrophe modeling for windstorm coverage calls into question the accuracy of rates developed using rating territories. Using premiums and modeled average annual loss (AAL) estimates from Citizens Property Insurance Corporation (Citizens) in Florida, this article analyzes the use of distance to coast (DtC) as a rating variable in providing coverage for the windstorm peril in homeowners insurance. Catastrophe models used to generate AAL costs do not rely on the same application of the law of large numbers as using historical loss costs and thus allows for more granular pricing of the windstorm peril. The results show that DtC, a rating variable that is property specific, more closely aligns premiums and AALs than territorial rating, and allows more granular pricing of the windstorm peril. More granular risk based pricing provides better incentives for homeowners regarding location and mitigation choices and may help reduce aggregate exposure to windstorm damages in the long run.

Damage Characterization: Application to Florida Public Hurricane Loss Model

Florida’s population growth in recent decades has produced a steady increase in the concentration of population and infrastructure along its coastline. During this growth period, the vulnerability of the Florida coastline to hurricane impact has been amply demonstrated. The aftermaths unveiled the underlying potential for dramatic economic loss, which is disruptive for the state economy and has created a crisis in the property insurance market. To aid in preparedness efforts, the state of Florida commissioned a group of experts to develop the Florida Public Hurricane Loss Model (FPHLM). This paper describes how hurricane damage prediction techniques were developed and implemented in the vulnerability module of the FPHLM. The module consists of an external damage simulation engine coupled with internal damage and contents damage simulation engines. These components are described in this paper.

The Development Mode of Chinese Property Insurance After Financial Crisis Period

Began in 2008 U.S. subprime mortgage crisis, the financial field spread to the entity economy, by developed countries spread to emerging industrialized and developing countries, the world economic and financial operation has a large negative impacts. Although China's property and casualty insurance market internationalization degree is not high, insurance overseas investment regulatory stricter, direct effect caused by the financial crisis is smaller. But this began in the 2008 global financial crisis puts forward new proposition to our national property insurance industry operations and weak risk prevention business model. But in the 2008 global financial crisis to our national property insurance industry operations, weak risk prevention business model. And accelerate changing property insurance development mode is the dependent pathway and realistic choice for the strategic adjustment of property insurance after the financial crisis.

Managing the Risk of Natural Catastrophes: The Role and Functioning of State Insurance Programs

This paper surveys state-mandated programs designed to provide natural catastrophe insurance to property owners and businesses unable to find a policy in the private market. The paper provides an overview of the 10 state programs offering wind or earthquake coverage and outlines the motivation for establishing such programs. The implications of design and operation decisions, such as pricing strategies and contract options, are discussed, as well as how these programs interact with the private property insurance market. Finally, the paper examines whether such programs can handle a truly catastrophic loss year and the merits and drawbacks of federal support for the programs.

Efficient Monopolies: The Limits of Competition in the European Property Insurance Market. By THOMAS VON UNGERN-STERNBERG

Efficient Monopolies: The Limits of Competition in the European Property Insurance Market. By THOMAS VON UNGERN-STERNBERG

Market Growth, Barriers to Entry, and Banks as Insurance Referral Agents: Evidence from the Title Insurance Industry

The purpose of this paper is to examine barriers to entry in an insurance market wherein banks are an integral part of the distribution system: Title insurance. We draw some broad comparisons between the distribution channels used to sell title insurance and the entry strategy used by banks entering the property and casualty insurance market. Given that the title insurance industry is characterized by two major entry barriers, controlled business arrangements and title plants, we test different industrial organization growth models with barriers to entry to determine which model best describes the title insurance industry. The empirical analysis we present suggests that the theoretical model that explains more accurately the current title insurance industry structure is the Salop circular-city model. Our contention is that if banks continue their current trend of market penetration into the property and casualty insurance markets, the results presented herein could potentially offer an insight into the future structure of that market.

State Intervention on the Market for Natural Damage Insurance in Europe

In this paper we briefly summarise the results of our studies of the property insurance market in 5 countries, Britain, Spain, France, Switzerland and Germany. We then draw conclusions, how the market for insurance against natural disasters (such as floods or subsidence) should be institutionally organised. Both for reasons of efficiency (lower administrative and sales costs) and to reduce the scope of risk selection, public monopolies should play an important role on this market. A further major advantage of the monopoly solution is the fact, that public insurers have a strong incentive to actively participate in prevention.

Die Vorteile des Staatsmonopols in der Gebäudeversicherung: Erfahrungen aus Deutschland und der Schweiz

Abstract This paper compares the prices charged and the quality of service provided by state monopolies and private insurance companies on the property insurance market. Both the cross-section data from Switzerland and the time-series evidence from Germany strongly suggest that in this specific market the presence of state monopolies is very advantageous for the customers. This raises the question why German academic economists made practically no effort to defend their state insurance monopolies in the debate about the 3rd EU directive on property insurance. Is it possible that peer pressure prevents academic economists from standing up to defend state monopolies, even if these are clearly to the benefit of consumers?

The Role of Government Contracts in Discretionary Reinsurance Markets for Natural Disasters

A recent surge in natural disaster losses in the United States has created widespread disruptions in the property insurance market and generated calls for federal protection against natural disaster risk. This article examines the market for disaster insurance in the United States and finds that insurance markets are limited in their ability to intertemporally diversify catastrophic risk. In a targeted response, this article proposes a new form of federal reinsurance based on the auctioning of multiple peril catastrophe call spread options that cover industry losses in the range of $25-$50 billion. This article argues that the sale of these catastrophe excess-of-loss contracts utilizes the unique intertemporal diversification capabilities of the federal government to expand the market for natural disaster risk while enhancing the private market equilibrium for insurance.

Deregulation and Gains to Search in the Property Liability Insurance Market

The dispersion of insurance prices offers a payoff to those searching for lower prices. This paper examines the expected gain to search in the insurance market by price conscious buyers both before and after rate deregulation. It shows that the gains to be achieved from search increase as price dispersion increases. Deregulation plausibly will lead to an increase in price dispersion. Evidence presented shows that the expected gain to search increases after deregulation. A reasonable assumption is that buyers of insurance are not perfectly informed about the prices charged by all potential sellers of insurance in the market.' Price dispersion will result and searching in the market will yield lower expected purchase prices. This paper examines the expected benefits of consumer search in the property and liability insurance market both before and after price deregulation. The results indicate that the expected gain from search is greater after deregulation. Consequently, consumers have an incentive to increase their stocks of price information. This observation, in turn, suggests that price deregulation may enhance the competitive character of the market. The next section demonstrates that an increase in the dispersion of prices causes an increase in the expected gain from search. A plausible argument is that rate deregulation will lead to an increase in price dispersion. Empirical data are provided that measure the expected gain to search both L. Dean Hiebert, Ph.D., is assistant professor of economics at Illinois State University. The author is grateful to Michael B. Johnson for supplying the data used in the study and for helpful suggestions of two anonymous Journal reviewers. Professor Hiebert has published previously in The Journal of Risk and Insurance. Joskow [3] persuasively supports this view: Undoubtedly, there is no other product for which consumer ignorance is so prevalent. Many consumers are unaware that there are price differences among insurance companies and that it is not necessary to go through an independent agent to obtain insurance. Comparative price shopping is very difficult since price differences for comparable coverages are not readily available in printed form and because it is difficult to obtain information from friends and neighbors. I can get good information on price differences and price levels for all kinds of products from the fellow in the next office if he has purchased these products and/or shopped around for them. Asking him about his insurance is of little value since he is in a different risk class, lives in a different community, and drives a different kind of car. [3, p. 404]

The Supply Function of Urban Property Insurance

This article examines the market for property insurance within the central core area of our major cities from the supply side, emphasizing the importance of cost as a detennining factor. The results of a survey of businessmen in the Los Angeles and Long Beach central core areas show that considerable difficulty is encountered by many in obtaining property insurance through conventional market channels. A simple simulation model is employed to analyze the effect upon the operating results of a firecasualty company of a central core city area riot under various types of reinsurance arrangements. Since the market price for the service may still be prohibitive, the possibility of a direct subsidy is considered. An alternative to the HUD plan is suggested. Under this program, a number of large fire-casualty insurers would be chosen on a bid basis to administer a special urban core area property insurance plan on a cost-plus basis. The central core areas of many of our major cities have recently been the scene of violence unprecedented in American history. Waves of burning and looting have erupted in one urban area after another, leaving in their wake untold numbers of smashed storefronts and streets lined with smoldering rubble. This civil vio,lence and unrest have served to dramatize the problems of the central core city. Neighborhoods have deteriorated into ugly blights on the landscape. The upkeep of homes and apartments has lagged. In this setting, owvners of homes and J. J. Launie, Ph.D., is Associate Professor of Finance and Law at San Fernando Valley State College. Dr. Launie formerly served on the staff of the Bureau of Business and Economic Research at the University of Nevada and on the staff of the California Assembly Revenue and Taxation Committee. This paper was presented at the A.R.I.A. 1968 Annual Meeting. This stuLdy was made possible by a research grant from the American Risk and Insurance Association. businesses are confronted with grave risks of the destruction of their property by the perils of fire and looting. Property insurance, written through private insurance carriers, has been the traditional means of transferring these risks for the property owners. This paper represents an attempt to determine the present conditions existing in the private property insurance market within the central core area of one of our largest cities, Los Angeles. Factors Influencing Supply This study concentrates upon the supply side of this market because there is little question concerning the demand for the service of fire insurance. The elasticity of the demand function is of some importance, however, and will be considered in detail below. In classical economic theory, the supply function for any good or service indicates the relationship between the amount of the service the producers of the good or service are willing to supply and the