Social and Behavioral Sciences Commons^™

A Disaster Under‑(Re)Insurance Puzzle: Home Bias In Disaster Risk‑Bearing, Hiro Ito, Robert N. Mccauley

Economics Faculty Publications and Presentations

We examine disaster reinsurance from the perspective of international risk-sharing. We find that losses from disasters are shared internationally to a generally very limited extent, unlike what the theory of international risk-sharing suggests. We propose a new dataset of cross-border reinsurance payments for 93 disasters of 44 economies in 1982–2017. Combining these balance of payments data with industry data, we find that the lack of disaster risk-sharing through international reinsurance results from low participation in primary insurance as well as limited use of reinsurance. Regression analysis finds that countries with higher levels of economic or financial development tend to insure …