The impact of unexpected natural disasters on insurance markets

ABSTRACT

In this paper, we examine the impact of unexpected natural disasters on the insurance industry. The industry is exposed to greater risks in states with large populations. Hence, we normalize the unexpected disasters with the population of the state. We find evidence that the total sales of the insurance industry goes up in response to an unexpected disaster. However, we also find evidence that unexpected disasters lead to higher market concentration. This could either be because some insurance firms becoming insolvent or people preferring to purchase insurance from larger firms.

KEYWORDS:

• Catastrophic risks
• insurance market
• natural disasters

JEL CLASSIFICATION:

• D8
• G22

Acknowledgments

We would like to thank Saicharan Abhishek for helping us with the data. Any mistakes are our own.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Robert T. Stafford Act 102; 44 CFR 206.2 and 206.36.

² https://www.bea.gov/.

³ https://www.followthemoney.org/.

⁴ http://www.naic.org/documents/members_state_commissioners_elected_appointed.pdf .