This presentation investigates the impact of insurance affordability criteria on uninsured natural catastrophe losses. The vehicle for analysis is a model of a catastrophe insurance market with explicit representation of the key stakeholders (homeowners, primary insurers, reinsurers, and government). The theoretical framework is applied in a case study of eastern North Carolina with spatially explicit representation of hurricane damage due to wind and storm surge. Affordability has become an area of concern in that the cost of insurance may be beyond the capability of a household to pay, leaving it vulnerable to catastrophic losses if an event occurs. Homes that would fall below an affordability threshold, expressed as a percentage of home value, are identified, and the effect of loss of insurance on the integrated model is examined. Examining affordability thresholds of 1% or 2% of home value shows that the homes that fail the affordability test account for a high proportion of expected losses in the high risk region of the study area and public (private) subsidization of insurance rates would not be cost-effective (destroy incentives for insurers to participate in the market). This study shows that a combination of insurance, retrofit, and acquisition is necessary to address hurricane risk.

Dr. Jamie Kruse is the Thomas Harriot College of Arts and Sciences Distinguished Professor of Economics at East Carolina University. She is also a Senior Scientist for the Institute of Coastal Science and Policy and the Director of the Center for Natural Hazards Research, both at East Carolina University. Dr. Kruse completed her doctoral work at the University of Arizona and has published over 60 refereed journal articles, in addition to proceedings, abstracts, and reports. Her primary research areas include risk and decision making, experimental economics, industrial organization and regulation, natural hazards economics, insurance and risk mitigation, and interdisciplinary research that integrates economic analysis with engineering, ecology, and the geosciences.

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