Increased Hurricane Risk and Insurance Market Responses

Journal of Insurance Regulation, 2005, 24(2): 3-32.

31 Pages Posted: 9 Oct 2015 Last revised: 31 Dec 2017

See all articles by Martin F. Grace

Martin F. Grace

Temple University - Risk Management & Insurance & Actuarial Science

Robert W. Klein

Georgia State University

Zhiyong (John) Liu

Indiana State University - Scott College of Business

Date Written: 2005

Abstract

The severe hurricane seasons of 2004 and 2005 and the resulting losses are prompting insurers to reassess their risk and business strategies in Southeastern states. This article examines recent trends in the affected homeowners insurance markets and discusses how these markets are likely to change in response to the reassessment of hurricane risk. Our examination of past market trends and current market conditions suggests that significant market restructuring is likely to occur as some insurers with large numbers of exposures will retrench and other insurers step in to fill the gap. The price of insurance also will increase significantly in high-risk areas, although the magnitude and pace of rate hikes will depend on insurers’ risk assessments and regulatory approvals. Greater pricing freedom will allow insurance markets to reach a new equilibrium more quickly, but regulators will also have to contend with strong political resistance to large rate hikes. The supply and price of reinsurance will be an important factor affecting market adjustments as a proposal to establish a federal catastrophe reinsurance program undergoes public debate.

Keywords: Hurricane, Catastrophe Risk, Risk Management, Insurance

JEL Classification: G2, L1, L8

Suggested Citation

Grace, Martin F. and Klein, Robert Warren and Liu, Zhiyong (John), Increased Hurricane Risk and Insurance Market Responses (2005). Journal of Insurance Regulation, 2005, 24(2): 3-32.. Available at SSRN: https://ssrn.com/abstract=2670910

Martin F. Grace

Temple University - Risk Management & Insurance & Actuarial Science ( email )

Fox School of Business and Management
1301 Cecil B. Moore Ave.
Philadelphia, PA 19122
United States

Robert Warren Klein

Georgia State University ( email )

5387 Northchester Ct
Atlanta, GA GA 30338
United States
404-386-1591 (Phone)

Zhiyong (John) Liu (Contact Author)

Indiana State University - Scott College of Business ( email )

Scott College of Business
Indiana State University
Terre Haute, IN 47809
United States

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