NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Long Term Insurance (LTI) for Addressing Catastrophe Risk

Dwight Jaffee, Howard Kunreuther, Erwann Michel-Kerjan

NBER Working Paper No. 14210
Issued in August 2008
NBER Program(s):   PE

This paper proposes long-term insurance (LTI) as an alternative to the standard annual homeowners policy using lessons from the mortgage market as a benchmark. LTI has the potential to significantly increase social welfare by reducing insurers’ administrative costs, lowering search costs and uncertainty for consumers and providing incentives for long-term investment in mitigation measures to protect property. A two-period model illustrates situations that would make a long-term contract attractive to both insurers and consumers under competitive market conditions.

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Document Object Identifier (DOI): 10.3386/w14210

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