Natural and Man Made Disasters

1711 Words4 Pages
bulb-icon

Recommended: An essay about natural & man made disasters

Both natural and man-made disasters are considered as events that can cause a large amount of losses and correlated with a small probability. It is rational for the population to have insurance against such events because most people are risk adverse: a risk adverse person means that the person will not prefer risk and will try to minimalize it. However, there is only a proportion of the population taking insurance against such events , without having insurance against such risk of losses banks were finding it a problem to issue loans and mortgages because they are exposed to the risk. To explain why there are only a small proportion of people insured (using the US as an example); the first step is to understand the insurance models, then to consider the behaviors of the demand side and supply side.
To understand why people who are at risk and not insured against it, it is important to understand how insurance works. Insurance is made to reduce risks by the purchaser paying a certain amount of money called a premium collected by the insurer. The premium is calculated by the insurer based on the probability of the occurrence of the event, the amount losses of the event and additional administration charges. The insurer collects the premiums and set up a pool of capital which is used to pay the unfortunates as coverage. Therefore it reduces the potential risk to a certain (or near) amount of losses that the purchaser paid as premium. Hence it explains why insurance is favorable to most people because most people are risk- adverse, so they are willing to pay small amount money to reduce the potential risk of large losses.
However, if insurance is favorable then why are people not insuring it, especially where the losses from disas...

... middle of paper ...

...sions in the most Misunderstood Industry, Cambridge University
Press, especially Chapters 2, 5 and 9 (available in e-book form through the library website)

H. Kunreuther, R. Meyer and E. Michel-Kerjan (2007) “Strategies for Better Protection against Catastrophic Risks,” Risk Management and Decision Processes Center, The Wharton
School of the University of Pennsylvania, September 2007 available at: http://opim.wharton.upenn.edu/risk/library/WP2007-09-14.pdf E. Michel-Kerjan (2010) “Catastrophe Economics: The National Flood Insurance Program,”
Journal of Economic Perspectives, Vol, 24:4, p.165-86

H. Kunreuther and E. Michel-Kerjan (2004) “Policy Watch: Challenges for Terrorism Risk
Insurance in the United States” Journal of Economic Perspectives, Vol. 18:4, p. 201-14
C.Gollie(2005)”Some aspects of the economics of catastrophe risk insurance”CESIFO1409

Show More
Related

  • Risks Facing Investors in the Article, Can We Keep Our Promises?” by Robert D. Arnott

    1677 Words  | 4 Pages

    Similar to what the article states, we have seen that risk is something that can go wrong, which we are unaware until a crisis happens. Many people tend to ignore the short tails of distribution saying they don't matter because there's a low possibility that it will occur. Think back to one such “perfect storm” that happened back in ...

    Read More

  • Disasters and Natural Hazards

    2120 Words  | 5 Pages

    Regina:The Early Years. (2014). Cyclone of 1912. Regina: The Early Years 1880 -1950. Retrieved March 7, 2014, from http://scaa.usask.ca/gallery/regina/central/cyclone.html

    Read More

  • Healthcare in America: At the Top of the List of Social and Eonomic Problems

    629 Words  | 2 Pages

    The Lack of health insurance coverage is most often the result of a combination of things. These factors include employment status, financial conditions and even health problems.(Feldman 2012) These three things can been seen as reasons why coverage can be difficult to obtain. In most states, insurers may deny applicants for coverage completely. They often try to impose either a permanent or temporary existing condition that puts limitation on your coverage. some may even charge a higher premium based on your health status your occupation, and other personal characteristics . (Institute 2009) .For those people who consider themselves as self-employed who want to buy their own private health insurance, can be twice as expensive as that that is being offered through employers. (Feldman 2012)

    Read More

  • All Americans Have a Right to Health Care

    1543 Words  | 4 Pages

    A lot of people that go without preventative care treatment would most likely prevent them from suffering later down the road. Seventy percent of uninsured men who are the correct age for prostate cancer screening don’t have these tests done. Is it such a wonder why they don’t do this? Maybe it is because there isn’t any insurance to cover these tests. Also, forty six percent of all uninsured women who are the correct age for mammograms don’t have them. It’s such a shame that these people go without these, which in the end could detect diseases and prevent it all before they get sicker. (Sullivan) Consequently, people who are uninsured die earlier than those who are insured. They simply...

    Read More

  • Uninsured Health Care Essay

    1401 Words  | 3 Pages

    Health insurance and health outcomes are closely associated. If the same uninsured individual instead has continuous health insurance, he or she will not be at risk for premature death and will have better health outcome (Marwick 2002). Uninsured people report that they are in poorer health than people with health insurance. Low levels of self-reported health status are a powerful predictor of future illness and premature death (Bailey 2009).

    Read More

  • Pros And Cons For Owning A Truck

    1102 Words  | 3 Pages

    Many individuals receive car insurance that is lower than if they were to have a truck. Car insurance tends to have a lower rate simply because cars can’t do as much damage. One other reason car insurance can be less costly, is that depending on the car, it doesn’t cost as much to replace if a claim is filed. Although with insurance, this can also vary with age and gender as well.

    Read More

  • PPACA

    807 Words  | 2 Pages

    Before Obamacare was passed, millions of Americans were uninsured, suffered and died prematurely each year since lack of health insurance. Insurance companies could deny any one for pre-existing illnesses or drop them when they get sick, or stop treating them when they touched annual or life-time perimeters. Over 60% of bankruptcies were associated to medical expenses, several of these people had insurance. Insurance companies had no limits on raising premiums. Preventative measures and wellness visits were not covered adequately (Mowrey, 2013).

    Read More

  • Engineering disasters

    694 Words  | 2 Pages

    On February 1, 2003, the Space Shuttle Columbia was lost due to structural failure in the left wing. On take-off, it was reported that a piece of foam insulation surrounding the shuttle fleet's 15-story external fuel tanks fell off of Columbia's tank and struck the shuttle's left wing. Extremely hot gas entered the front of Columbia's left wing just 16 seconds after the orbiter penetrated the hottest part of Earth's atmosphere on re-entry. The shuttle was equipped with hundreds of temperature sensors positioned at strategic locations. The salvaged flight recorded revealed that temperatures started to rise in the left wing leading edge a full minute before any trouble on the shuttle was noted. With a damaged left wing, Columbia started to drag left. The ships' flight control computers fought a losing battle trying to keep Columbia's nose pointed forward.

    Read More

  • The Health Insurance Crisis in America

    2561 Words  | 6 Pages

    Health insurance comes as second nature to many of us. We grab that blue and white card and put it in our wallet and forget about it until we are sick or injured. When this happens, there it is, cushioning our fall like the extra padding it provided to cushion our wallets. This is not the case with everyone, however. Many Americans have no cushion to fall back on, no blue and white card to show the emergency room when they have an unexpected health concern. No HMO with a convenient co-pay amount when their son or daughter develops an ear infection.

    Read More

  • The Health Care Crisis

    3922 Words  | 8 Pages

    It is hard to imagine life without health insurance. If you have any type of medical problem that requires attention, and you have appropriate health care insurance, you can be cared for in the finest of private hospitals. You can get great treatment and your ailments, depending on the severity, can be treated as soon as possible. Doctors, physicians and surgeons are willing to put out a big effort if they know that they are dealing with patients who are insured and have the money to go under extensive medical treatment. But imagine life without such luxuries. For example, what happens if a relative requires much needed surgery, but does not have health insurance to cover the procedure? What happens if a lack of medical insurance prevents you or your family from seeing a doctor, which could result in health problems that had not been identified but could have been treated before they became life threatening? These scenarios may seem far-fetched, but these types of situations happen to people who lack health coverage everyday. There is a true story about a patient who was insured and diagnosed with treatable cervical cancer. Unfortunately, she lost her job and with it her insurance. She was then unable to see her private doctor, and was turned away from other hospitals because ?cancer treatment is not considered an emergency in a patient who can?t pay? (?Help for D.C.?s Uninsured?). The woman later died at her home without ever being treated. This example raises the question, since when are people with less money less deserving of health care or appropriate treatment?

    Read More

  • Catastrophe Bonds: The New Insurance

    2559 Words  | 6 Pages

    Catastrophe bonds are a new type of insurance securitization and have become increasingly popular in the insurance industry throughout the 21st century. Unlike traditional reinsurance products, cat bonds are “fixed income instruments issued primarily by insurers and reinsurers as a way of passing on their exposure to potential large financial risks associated with natural catastrophes” (Ip). in the form of an insurance linked security. These securities are designed to protect insurers and reinsurers against “super” catastrophes, or events that are high severity, but low frequency of occurrence, defined as having around a 1% or 1 in 100 years probability. Cat bonds first emerged in the 1990s, after hurricane Andrew and the Northridge Earthquake in California wiped approximately USD 30 billion off balance sheets of insurers and reinsurers. Insurers and reinsurers noticed the industry’s vulnerability to such “super” catastrophes. “The potential cost of a disaster had outgrown the capacity of the insurance industry to protect against it” (Ip). Reinsurers had to increase equity levels in order to protect against a natural disaster which increased the price for catastrophe risk. Although catastrophe bonds have parameters which strictly limit the type and location of a disaster they cover, cat bonds have had a positive impact on the insurance industry because cat bonds add reinsurance capacity through the financial market, cat bonds influence the price of traditional reinsurance, and cat bonds enable regional insurance carriers to expand underwriting.

    Read More

  • Access To Health Care Essay

    1028 Words  | 3 Pages

    Health insurance facilitates entry into the health care system. Uninsured people are less likely to receive medical care and more likely to have poor health. Many Americans are foregoing medical care because they cannot afford it, or are struggling to pay their medical bills. “Adults in the US are more likely to go without health care due to cost” (Schoen, Osborn, Squires, Doty, & Pierson, 2010) Many of the currently uninsured or underinsured are forced accept inferior plans with large out-of-pocket costs, or are not be able to afford coverage offered by private health insurers. This lack of adequate coverage makes it difficult for people to get the health care they need and can have a particularly serious impact on a person's health and stability.

    Read More

  • How To Buy Life Insurance Essay

    1594 Words  | 4 Pages

    Affordability - Term premiums are very affordable. If you're in excellent health, you can get a lot of coverage for very little cost.

    Read More

  • The Earthquake

    363 Words  | 1 Pages

    It was a beautiful day like any other with the clear blue sky and the

    Read More

  • Earthquakes Hazards And Disaster

    1192 Words  | 3 Pages

    Earthquakes belong to the class of most disastrous natural hazards. They result in unexpected and tremendous earth movements. These movements results from dissemination of an enormous amount of intense energy in form of seismic waves which are detected by use of seismograms. The impact of earthquakes leaves behind several landmarks including: destruction of property, extensive disruption of services like sewer and water lines, loss of life, and causes instability in both economic and social components of the affected nation (Webcache 2).

    Read More

More about Natural and Man Made Disasters

Open Document