Catastrophic Risks and First-Party Insurance

53 Pages Posted: 22 Jan 2008 Last revised: 5 Nov 2009

See all articles by Michael G. Faure

Michael G. Faure

University of Maastricht - Faculty of Law, Metro; Erasmus University Rotterdam (EUR) - Erasmus School of Law

Véronique Bruggeman

Maastricht University - METRO Institute

Date Written: September 1, 2007

Abstract

Although the insurance industry demonstrates a growing concern about the severe rise in losses from natural disasters, only about one third of all potential victims have in fact purchased first-party catastrophe insurance. Although first-party insurance has several advantages, we find that there is indeed actually no demand for and supply of first-party insurance for natural catastrophes. Therefore, the central question we examine from a behavioral law and economics perspective is why in fact so little use is made of the possibilities of first-party insurance and why first-party insurance can constitute a viable alternative to government compensation. Further, we wonder whether compulsory first-party disaster coverage could be a solution. To conclude, we consider under which circumstances the further introduction of first-party catastrophe insurance should be applauded as a means to encourage potential victims to take control over their compensatory means without losing track of giving them preventive incentives as well.

Keywords: Natural catastrophes, first-party insurance, compulsory insurance, government relief

JEL Classification: K32

Suggested Citation

Faure, Michael G. and Bruggeman, Véronique, Catastrophic Risks and First-Party Insurance (September 1, 2007). Connecticut Insurance Law Journal, Vol. 15, No. 1, 2008-09. Available at SSRN: https://ssrn.com/abstract=1086036

Michael G. Faure (Contact Author)

University of Maastricht - Faculty of Law, Metro ( email )

PO Box 616
Maastricht, 6200 MD
Netherlands
+31 - 43 - 388 30 60 (Phone)
+31 - 43 - 325 90 91 (Fax)

HOME PAGE: http://www.michaelfaure.be

Erasmus University Rotterdam (EUR) - Erasmus School of Law ( email )

3000 DR Rotterdam
Netherlands

Véronique Bruggeman

Maastricht University - METRO Institute ( email )

PO Box 616
Maastricht, 6200 MD
Netherlands

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