Insurance Against Catastrophe: Government Stimulation of Insurance Markets for Catastrophic Events

58 Pages Posted: 9 Feb 2013

See all articles by Véronique Bruggeman

Véronique Bruggeman

Maastricht University - METRO Institute

Michael G. Faure

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

Tobias Heldt

Maastricht University

Date Written: February 8, 2013

Abstract

In the last decade one can identify several accidents which can be classified as large scale accidents of a catastrophic dimension. After such a catastrophe the compensation of victims is of crucial importance and governments often intervene in this compensation. However, the organization of government intervention in the compensation varies from one country to another and from one disaster to another. Governments intervene either because no satisfying solution is available in the private market or to fulfil the requirements of existing compensation schemes. Political pressure for such intervention may also be large. Consequently Governments may try to intervene to stimulate the insurability of catastrophic risks or to take over insurance functions when markets fail. There is a tendency in the last years to use such public-private partnerships more frequently.

The paper has analysed how such partnerships can work and in what way such intervention should be structured. It is argued that intervention should always be designed in accordance with criteria of economic efficiency to prevent that the intervention of the government amounts to a subsidy. This would not only be detrimental in terms of efficiency, but could also lead to problems with regard to state aid considerations. This paper delineates some conditions which have to be fulfilled to guarantee an efficient intervention. This theoretical framework serves to discuss the drawbacks on the one hand but also advantages on the other hand of government intervention to stimulate the reinsurability of catastrophic risks.

Keywords: catastrophe, government intervention, private insurance market, FEMA, mandatory comprehensive insurance, reinsurance, pooling, lander of last resort, insurability

JEL Classification: K32, K33, K13

Suggested Citation

Bruggeman, Véronique and Faure, Michael G. and Heldt, Tobias, Insurance Against Catastrophe: Government Stimulation of Insurance Markets for Catastrophic Events (February 8, 2013). Duke Environmental Law & Policy Forum, Vol. 23, No. 185, 2012. Available at SSRN: https://ssrn.com/abstract=2213772 or http://dx.doi.org/10.2139/ssrn.2213772

Véronique Bruggeman

Maastricht University - METRO Institute ( email )

PO Box 616
Maastricht, 6200 MD
Netherlands

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

Tobias Heldt

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

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