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Can we insure these risks?

Fat Tails. Can we insure these risks?. Cooke and Kousky nsf # 0960865. Micro Correlations. Tail Dependence. These risks have big loss years: NFIP example. And even bigger losses can be expected . Insuring Risks is EXPENSIVE. Rates of Return on Net Worth for Homeowners Ins: US vs. Florida.

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Can we insure these risks?

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  1. Fat Tails Can we insure these risks? Cooke and Kousky nsf# 0960865 Micro Correlations Tail Dependence

  2. These risks have big loss years: NFIP example

  3. And even bigger losses can be expected

  4. Insuring Risks is EXPENSIVE

  5. Rates of Return on Net Worth for Homeowners Ins: US vs. Florida Measure of firm profitability Source: NAIC; 2005/6 US and FL estimates from the Insurance Information Institute.

  6. Rates of Return on Net Worth for Homeowners Ins: US vs. Florida Averages: 1990 to 2006E US HO Insurance = -0.7% FL HO Average = -38.1% 4 Hurricanes Wilma, Dennis, Katrina Andrew Source: NAIC; 2005/6 US and FL estimates from the Insurance Information Institute.

  7. MITIGATION(aka ‘get out of the way’) Thin the tails De-couple risks Reduce insurance costs

  8. Fat Tails THANKS for viewing! Cooke and Kousky nsf# 0960865 Micro Correlations Tail Dependence

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