The current system for managing natural disaster risk in the United States is problematic for both homeowners and insurers. Homeowners are often uninsured or underinsured against natural disaster losses, and typically do not invest in retrofits that can reduce losses. Insurers often do not want to insure against these losses, which are some of their biggest exposures. There is a need to design an improved system that acknowledges the different perspectives of the stakeholders. This talk develops an industrial organization framework to capture the strategic relationship of one or more insurers with the other stakeholders in the market. Using this framework, the performance of a voluntary natural disaster catastrophe loss insurance market is examined as the level of competition within that market changes. More specifically, we integrate (1) a utility-based homeowner decision model; (2) a stochastic optimization model to optimize reinsurance decisions by the primary insurers; and (3) a state-of-the-art regional catastrophe loss estimation model, all within the framework of a static Cournot-Nash noncooperative game assuming perfect information.
Can’t make it in person? View online at: Linda Nozick
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Linda K. Nozick
Director of College Program in Systems Engineering, Cornell; Professor, Systems Engineering & Civil and Environmental Engineering
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