Long Term Insurance (Lti) for Addressing Catastrophe Risk
37 Pages Posted: 18 Aug 2008 Last revised: 8 May 2012
Date Written: August 2008
This paper proposes long-term insurance (LTI) as an alternative to the standard annual homeowners policy using lessons from the mortgage market as a benchmark. LTI has the potential to significantly increase social welfare by reducing insurers' administrative costs, lowering search costs and uncertainty for consumers and providing incentives for long-term investment in mitigation measures to protect property. A two-period model illustrates situations that would make a long-term contract attractive to both insurers and consumers under competitive market conditions.
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