The Catastrophic Effects of Natural Disasters on Insurance Markets

Natural catastrophes often have catastrophic risks on insurance companies as well as on the insured. Using a very large dataset on homeowners%u2019 insurance coverage by state, by firm, and by year for the 1984 to 2004 period, this paper documents the positive effect on losses and loss ratios of both unexpected catastrophes as well as large events that the authors term %u201Cblockbuster catastrophes.%u201D Insurers adapt to these catastrophic risks by raising insurance rates, leading to lower loss ratios after the catastrophic event. There is a widespread event of unexpected catastrophes and blockbuster catastrophes that reduces total premiums earned in the state, reduces the total number writing insurance coverage in the state, and leads to the exit of firms from the state. Firms with low levels of homeowners%u2019 premiums are most adversely affected by the catastrophes.

Claims-Made and Reported Policies and Insurer Profitability in Medical Malpractice

The liability crisis of the 1970s led to the introduction of a new type of insurance policy designed, according to Doherty (1991), to reduce the un-diversifiable uncertainty associated with writing long-tail liability lines. These new claims-made and reported policies gained favor in place of the traditional occurrence coverage in the early eighties not only in medical malpractice, but also in the general liability arena. Under occurrence coverage, a loss incurred in a given year is covered by the contract for that year, regardless of when the claim is reported. In contrast, a claims-made policy pays only the claims reported in the policy year. Our paper presents a structure, conduct, and performance analysis à la Joskow (1973) of the medical malpractice insurance industry by focusing on the differences between the two contracts. The main question we want to address is why there are two types of contracts that cover the same risk exposure in the medical malpractice insurance industry whereas in other lines of insurance, only one exists primarily. La crise de la responsabilité civile des années 70 a mené à la création d’un nouveau type de contrat d’assurance qui avait pour but, selon Doherty (1991), de réduire le risque systématique associé aux polices d’assurance à longue durée. Ces contrats CMR (Claims-Made and Reported) ont obtenu la faveur du public dans les années 80 particulièrement pour ce qui est de l’assurance de la responsabilité civile des professionnels de la médecine. Nous présentons ainsi une étude de la structure et de la performance de l’industrie de l’assurance de la responsabilité civile des professionnels de la médecine en mettant en relief les deux types de contrats dans ce marché. La question à laquelle nous voudrions ultimement répondre est la suivante : pourquoi dans le marché de l’assurance de la responsabilité civile des professionnels de la médecine retrouvons-nous les deux types de contrats alors qu’un seul type est généralement offert dans les autres marchés?medical malpractice insurance, industry structure and performance analysis, claims-made contracts, assurance de la responsabilité civile des professionnels de la médecine, analyse de la structure et de la performance de l’industrie, contrats CMR

The Catastrophic Effects of Natural Disasters on Insurance Markets

Natural catastrophes often have catastrophic risks on insurance companies as well as on the insured. Using a very large dataset on homeowners insurance coverage by state, by firm, and by year for the 1984 to 2004 period, this paper documents the positive effect on losses and loss ratios of both unexpected catastrophes as well as large events that the authors term blockbuster catastrophes. Insurers adapt to these catastrophic risks by raising insurance rates, leading to lower loss ratios after the catastrophic event. There is a widespread event of unexpected catastrophes and blockbuster catastrophes that reduces total premiums earned in the state, reduces the total number writing insurance coverage in the state, and leads to the exit of firms from the state. Firms with low levels of homeowners premiums are most adversely affected by the catastrophes

The National Implications of Liability Reforms for General Liability and Medical Malpractice Insurance

The stabilization of the insurance market may lead to lower prices for products and for medical care, but will also generally lead to lower values of tort awards as well. If the social objective was simply to reduce losses, then that objective could be achieved by abolishing tort liability altogether. Our societal concerns are clearly much broader. In the absence of a more detailed assessment of the desirability of the reforms and their effect on injured parties, it would be premature to conclude that reform efforts that were successful in enhancing insurance market profitability should be judged a success from the standpoint of advancing social welfare. Instead, any pronouncements of success must be more limited to whether these efforts accomplished the avowed objectives of the tort reform efforts

Organizational Form and Insurance Company Performance: Stocks versus Mutuals

One unusual feature of the U.S. property-casualty insurance industry is the coexistence of stock and mutual companies. This paper explores the performance of these forms in the industry through a dynamic assessment of how mutual and stock insurance companies respond to differences in their underwriting environment. Agency theories suggest that the stock company may be more 'opportunistic' and less obligated to their insureds than mutuals. This article assesses the responses by stock and mutual firms to changes in the underwriting environment from 1984 to 1991, using measures of individual firms' performance, by state and by line, in eight different lines of insurance. Stock companies are more likely than mutuals to reduce their business in unprofitable situations, and have higher losses than mutuals for a given amount of premiums.

The Effects of Tort Reform on Medical Malpractice Insurers\u27 Ultimate Losses

Whereas the literature evaluating the effect of tort reforms has focused on the impact of reforms on insurers\u27 reported incurred losses, this article examines the ultimate effects of reforms using the developed losses from a comprehensive sample of insurers writing medical malpractice insurance from 1984 to 2003. Noneconomic damages caps are particularly influential in reducing medical malpractice losses and increasing insurer profitability. The long‐run effects of these reforms are greater than insurers\u27 expected effects; for example, 5‐ and 7‐year developed loss ratios are below the initially reported incurred loss ratios for those years following the enactment of noneconomic damages caps. Analyses of reported losses consequently understate the ultimate effects of tort reforms. The quantile regressions show that reforms have the greatest effects for the firms that are at the high end of the loss distribution

The Effects of Tort Reform on Medical Malpractice Insurers’ Ultimate Losses

Whereas the literature evaluating the effect of tort reforms has focused on reported incurred losses, this paper examines the long run effects using a comprehensive sample by state of individual firms writing medical malpractice insurance from 1984-2003. The long run effects of reforms are greater than insurers\u27 expected effects, as five year developed losses and ten year developed losses are below the initially reported incurred losses for those years following reform measures. The quantile regressions show the greatest effects of joint and several liability limits, noneconomic damages caps, and punitive damages reforms for the firms that are at the high end of the loss distribution. These quantile regression results show stronger, more concentrated effects of the reforms than do the OLS and fixed effects estimates for the entire sample

Does Spending on Medical Services Change as HMOs Grow and Mature?

This research examines the cost structure of a nationally representative sample of HMOs from 1991-1994 to determine whether cost savings achieved through enrollment growth and age of the plan are shared with any of the factors of production. The data are obtained from Health Care Investment Analysts. A generalized translog cost function is used to derive factor share equations for four intermediate groups of inputs used by an HMO: physician services, other medical provider services, hospital services and administrative services. We estimate the system of annual factor shares using seemingly unrelated regression analysis and find that both plan size and age have a significantly positive effect on the level of plan expenditure on physicians, other medical providers and hospitals. Examination of the changes in factor shares over time, however, indicates that large changes in membership have no significant effect on the amount of resources dedicated to physicians. Only hospitals see a significant increase in the change in factor share at the expense of administrative services.