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Strict property insurance regulation linked to post-disaster catastrophe rate increases


September 9, 2009   by Canadian Underwriter


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Post-disaster property insurance regulations drive up the very insurance prices they purport to control, according to a report from the Independent Institute.
The Independent Institute has six centres with a mandate to evaluate, refine, and propose solutions to major social and economic issues.
In a recent report, Catastrophes and Performance in Property Insurance, economists Patricia H. Born, associate professor at Florida State University, and Barbara Klimaszewski-Blettner, research assistant and doctoral candidate at Ludwig-Maximilians-Universität Munich, say strict regulatory environments cause higher losses from unexpected catastrophes because insurance companies are unable to adjust prices in light of changing conditions.
“Notably, commercial insurers experience less loss following catastrophes than the homeowners insurance market due to greater flexibility and fewer constraints,” according to a release announcing the research.
The two economists drew data from the National Association of Insurance Commissioners and catastrophic event figures from Swiss Re Sigma reports, the release notes.
“Market regulation is intended to protect insurance consumers from unfair insurance prices,” according to a brief about the report on The Independent Institute’s Web site. “However, when regulators impose restrictions on premium adjustments intended to guarantee the affordability of insurance coverage, insurers may choose to exit the market if they cannot maintain solvency.
“As a result, regulators then impose exit restrictions or cancellation bans.”