Author(s): Xiujun Wu; Xianjia Wang; Xiang Fu
Linked Author(s):
Keywords: Flood insurance; Mechanism; Adverse selection; Moral hazard; Government participation
Abstract: Floods pose one of the greatest overall and most widely distributed natural risks to life and property throughout the world. Complete control of a flood is impractical since flood is a random phenomena and it is impossible to over-invest. So non-structural measures have become much popular. Besides public and private measures, insurance is a key factor in reducing the risk for individuals, enterprises and even the whole society. In recent years, the demand for flood insurance has been growing. This is forcing the insurance and government to develop appropriate solutions. It is a principal problem for us to design an effective mechanism for flood insurance because flood insurance, other than general property insurance, are easier to bring the insurance company into a jam due to the well-known adverse selection, moral hazard, large imprecise risks and especially high loss correlation. Increasing attention has been paid to design mixed systems of flood insurance, in which the public sector provides some types of compulsory plan but the private sector is allowed to offer supplementary coverage. Some people who oppose it prefer a mixed public-private insurance system for co-sharing the risk from accepting flood insurance are examined in this paper. The efficiency properties of insurance under all sorts of suggestions and scenarios.
Year: 2004