Corporate Demand for Insurance: New Evidence from the U.S. Terrorism and Property Markets / Erwann Michel-Kerjan, Paul Raschky, Howard Kunreuther.

By:

Michel-Kerjan, Erwann

Contributor(s):

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w19532.Publication details: Cambridge, Mass. National Bureau of Economic Research 2013.Description: 1 online resource: illustrations (black and white)Subject(s):

Online resources:

Available additional physical forms:

Hardcopy version available to institutional subscribers

Abstract: Since the passage of the Terrorism Risk Insurance Act of 2002, corporate terrorism insurance is sold as a separate policy from commercial property coverage. In this paper, we determine whether companies differ in their demand for property and terrorism insurance. Using a unique dataset of insurance policies purchased by large U.S. firms, combined with financial information of the corporate clients and of the insurance provider, we apply a two-stage least squares (2SLS) approach to obtain consistent estimates of premium elasticity of corporate demand for property and terrorism coverage. Our findings suggest that both are rather price inelastic and that corporate demand for terrorism insurance is significantly more price inelastic than demand for property insurance. We further find a negative relation between the solvency ratios of both property and terrorism risk coverage, with a stronger effect on the latter, indicating that companies use their ability to self-insure as a substitute for market insurance. Our results are robust to the application of alternative estimators as well as changes in the econometric specifications.

Tags from this library: No tags from this library for this title. Log in to add tags.

Average rating: 0.0 (0 votes)

Holdings
Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w19532 (Browse shelf(Opens below))	Not For Loan

Total holds: 0

Collection: Colección NBER Close shelf browser (Hides shelf browser)

Previous	No cover image available	No cover image available	No cover image available	No cover image available	No cover image available	No cover image available	No cover image available	Next
Previous	nber w1953 The Canada-U.S. Auto Pact of 1965: An Experiment in Selective Trade Liberalization /	nber w19530 Food Price Spikes, Price Insulation and Poverty /	nber w19531 High Frequency Traders: Taking Advantage of Speed /	nber w19532 Corporate Demand for Insurance: New Evidence from the U.S. Terrorism and Property Markets /	nber w19533 Waste of Effort? International Environmental Agreements /	nber w19534 Risk-Taking Behavior in the Wake of Natural Disasters /	nber w19535 The Intergenerational Transmission of Automobile Brand Preferences: Empirical Evidence and Implications for Firm Strategy /	Next

October 2013.

Since the passage of the Terrorism Risk Insurance Act of 2002, corporate terrorism insurance is sold as a separate policy from commercial property coverage. In this paper, we determine whether companies differ in their demand for property and terrorism insurance. Using a unique dataset of insurance policies purchased by large U.S. firms, combined with financial information of the corporate clients and of the insurance provider, we apply a two-stage least squares (2SLS) approach to obtain consistent estimates of premium elasticity of corporate demand for property and terrorism coverage. Our findings suggest that both are rather price inelastic and that corporate demand for terrorism insurance is significantly more price inelastic than demand for property insurance. We further find a negative relation between the solvency ratios of both property and terrorism risk coverage, with a stronger effect on the latter, indicating that companies use their ability to self-insure as a substitute for market insurance. Our results are robust to the application of alternative estimators as well as changes in the econometric specifications.