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The Disaster Insurance Project Wharton Center for Risk Management and Decision Processes University of Pennsylvania Insurance Information Institute and Center for Risk Management and Insurance Research Georgia State University. Advisory Committee Meeting Wharton School - PowerPoint PPT Presentation
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1
The Disaster Insurance Project
Wharton Center for Risk Management and Decision Processes University of Pennsylvania
Insurance Information Institute
and
Center for Risk Management and Insurance ResearchGeorgia State University
Advisory Committee Meeting
Wharton School
University of Pennsylvania
June 16, 2006
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Nature of the Problem
Natural disasters in the US have caused severe insured losses in recent years– Hurricane Katrina: $40-$55 billion– Hurricane Andrew: $21.5 billion (2004 dollars)
Most costly years in the history of catastrophe insurance: 2005 and 2004 in that order. Will 2006 or 2007 be even worse?
Victims complain about receiving substantially less than the actual costs to repair or rebuild their damaged structures from Katrina
Federal government is committed to providing liberal disaster assistance to aid the victims of Katrina and rebuild the Gulf Coast
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Questions for the Wharton Disaster Insurance Project
Who are the interested parties involved in dealing with natural disasters, and what are their goals, values and objectives?
What role can the public sector play in partnering with the private sector in general and the insurance sector in particular to lever its strengths (knowledge, network, financial capacity) in reducing the potential losses from future natural disasters and increasing the speed and efficiency of recovery from any large scale disaster?
How will losses be shared among affected parties after the next disaster? What are the current loss sharing mechanisms in place?
What are the costs, benefits and tradeoffs associated with alternative risk mitigation strategies?
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Analysis Plan
Focus on homeowner insurance (as a first step; possible extension to commercial later on)
Focus on disaster insurance and reinsurance markets in 5 states and metropolitan areas:
- Florida (Miami)- Texas (Houston)- New York (specific zip codes of NYC)- South Carolina (Charleston)- California (Oakland)
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Supply/DemandEconometric
Analysis
Characteristics ofProperty Insurance inSelected States andMetropolitan Areas
State Market &RegulatoryAnalyses
Reinsurance & Capital Market
Analysis
Developing EP Curves with Modeling Firms
Integrating Datafor Assessing
Alternative PolicyOptions
Alternative Policy Options1. Private Sector Roles2. Public Sector Roles3. Mitigation Measures 4. Other Options
Socioeconomic &Demographic
Analysis
Structure of Disaster InsuranceProject
Evaluation ofAlternative
Policy Options
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Timeline (2006)
First workshop (with sponsors): June 15, 2006 (Wharton)
Preliminary report (September) and Feedback from sponsors and other organizations (October)
Wharton Disaster Insurance Forum (wider group of participants) : Autumn 2006 (Date to be announced)
Publication of final report: End of 2006
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Questions for DiscussionShould all property owners be required to have protection against catastrophic
losses? – Mandatory insurance coverage– Tax on all property based on actuarial risk
How many homeowners are uninsured against damage from natural hazards in risk-prone areas?
What role should regulation play?– Challenges in states permitting risk-based insurance rates– Reexamination of accounting standards for capital market instruments
What are the liability issues?– Paying for water damage even though homeowners insurance doesn’t cover it – Lawsuits filed in Mississippi and Louisiana following Katrina claiming that
homeowners policies should provide protection against water damage
What type of special treatment should be given low income families residing in hazard-prone areas? (equity issues)
– Types of subsidies, grants or loans that should be given to this group– Determining proportion of home eligible for special treatment