An excellent survey of disaster insurance premium estimation.The volume is written by a variety of contributors, but they follow an outline predetermined by the editors.The material starts with an introduction to natural disasters (hurricanes and earthquakes), then reviews the primary 'technique' recommended by the authors: using GIS databases and sophisticated computer models to predict disaster costs (disaster models).Unfortunately, the details of running these models are hard to communicate without giving the reader access to an interface of a sample model.Despite this difficulty, there is an excellent chapter detailing the legal battles between the insurance industry and consumer advocates.The battle was fought after the Northridge, CA earthquake, and the GIS data and disaster models were the heavy artillery employed by the insurance brokers. The authors review difficult issues regarding 'fair premium price' determination for regulated retail insurance policies.The purchasers of disaster insurance tend to see the brokers collecting risk-free profits. The brokers counter that the Northridge earthquake insurance payouts exceed all the premiums paid in California for over 20 years.Elsewhere the authors mention hurricane Andrew insurance payouts exceeded all insurance payments ever collected in Florida.
The final chapter covers 'terrorism insurance', and represents an excellent survey of issues facing the insurance industry after September 11.One of the interesting issues raised in the mismatch between industry assessment of 'fair premium' and public assumptions that a 9/11 type disaster could not happen, again.At least this is what sale of terrorism insurance demonstrates.
The book will probably suggest more questions than it answers.In particular, the chapter on terrorism raises interesting issues about 'governmental' coverage versus 'private' coverage.At a certain level, victims of terrorism can expect taxpayers to 'aid' those suffering from the disaster. 'Aid' is another term for insurance, but 'coverage' is universal and payments hidden in various taxes.Coming up with fair 'retail terrorism insurance premiums' seems beyond the capabilities of the US insurance system. The problems are structural and won't go away any time soon.
Click Here to see more reviews about: Catastrophe Modeling: A New Approach to Managing Risk (Huebner International Series on Risk, Insurance and Economic Security) (Hardcover)
No comments:
Post a Comment