Long Term Insurance (Lti) for Addressing Catastrophe Risk

37 Pages Posted: 18 Aug 2008 Last revised: 8 May 2012

See all articles by Dwight M. Jaffee

Dwight M. Jaffee

University of California, Berkeley - Finance Group; National Bureau of Economic Research (NBER)

Howard Kunreuther

University of Pennsylvania - Operations, Information and Decisions Department; National Bureau of Economic Research (NBER)

Erwann Michel-Kerjan

University of Pennsylvania - The Wharton School - Center for Risk Management

Date Written: August 2008

Abstract

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.

Suggested Citation

Jaffee, Dwight M. and Kunreuther, Howard C. and Michel-Kerjan, Erwann, Long Term Insurance (Lti) for Addressing Catastrophe Risk (August 2008). NBER Working Paper No. w14210. Available at SSRN: https://ssrn.com/abstract=1230838

Dwight M. Jaffee (Contact Author)

University of California, Berkeley - Finance Group ( email )

Haas School of Business
545 Student Services Building
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Howard C. Kunreuther

University of Pennsylvania - Operations, Information and Decisions Department ( email )

3730 Walnut Street
558 & 559 Jon M. Huntsman Hall
Philadelphia, PA 19104-5340
United States
212-854-0423 (Phone)
215-573-2130 (Fax)

National Bureau of Economic Research (NBER)

Erwann Michel-Kerjan

University of Pennsylvania - The Wharton School - Center for Risk Management ( email )

Jon M Huntsman Hall, Suite 500
3730 Walnut Street
Philadelphia, PA 19104-6365
United States

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