Working Paper: NBER ID: w17403
Authors: Erwann Michel-Kerjan; Paul Raschky; Howard Kunreuther
Abstract: Using a unique dataset of insurance decisions by over 1,800 large U.S. corporations, this study provides the first empirical analysis of firm behavior that compares corporate demand for property and catastrophe insurance (here, terrorism). We combine demand and supply data and apply a simultaneous-equation approach to address the problem of endogenous premium decisions. The main finding is that demand for property and catastrophe insurance are not very different and that the demand for catastrophe coverage is actually more price inelastic. We also show that a corporation's ability to self-insure affects the demand for catastrophe insurance but not for property insurance.
Keywords: insurance; corporate demand; catastrophe risk; non-catastrophe risk; terrorism
JEL Codes: D21; D81; G22; H56
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| corporate demand for catastrophe insurance (G52) | price inelasticity (P22) |
| 10% increase in price of terrorism coverage (G52) | 2.42% reduction in quantity demanded (D11) |
| 10% increase in price of property coverage (G52) | 2.91% reduction in quantity demanded (D11) |
| higher solvency ratio (G32) | decrease in demand for catastrophe insurance (G52) |
| higher solvency ratio (G32) | no significant effect on demand for property insurance (G52) |