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What role for “long-term insurance” in adaptation? An analysis of the prospects for and pricing of multi-year insurance contracts

Maynard, Trevor and Ranger, Nicola (2012) What role for “long-term insurance” in adaptation? An analysis of the prospects for and pricing of multi-year insurance contracts. The Geneva Papers on Risk and Insurance Issues and Practice, 37 (2). pp. 318-339. ISSN 1018-5895

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Abstract

Multi-year insurance has been proposed as a tool to incentivise policy-holders to invest in property-level adaptation. In a world of rising natural catastrophe risks, such autonomous adaptations could have significant benefits for the property owner, the insurer and society. We review some arguments made in respect of multi-year contracts and provide new analyses on their price implications. We conclude that even under conditions of known and stationary risk, initial capital requirements could be around 50 per cent higher for a 10-year contract than an annual contract and the annual premium around 5.5 per cent higher; in the real world of changing and uncertain risks, premiums would be even higher. We also conclude that multi-year contracts have several additional disadvantages that are likely to limit their demand and availability in the general retail insurance market. For adaptation, we conclude that other tools, such as risk-based premiums and loans for adaptation tied to the property, have greater potential.

Item Type: Article
Official URL: http://www.palgrave-journals.com/gpp/index.html
Additional Information: © 2012 The International Association for the Study of Insurance Economics.
Library of Congress subject classification: H Social Sciences > HG Finance
Journal of Economic Literature Classification System: G - Financial Economics > G2 - Financial Institutions and Services
G - Financial Economics > G2 - Financial Institutions and Services > G22 - Insurance; Insurance Companies
Sets: Research centres and groups > Grantham Research Institute on Climate Change and the Environment
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 25 Apr 2012 13:26
URL: http://eprints.lse.ac.uk/43326/

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