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

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Presentation on theme: "Fat Tails Tail Dependence Micro Correlations Can we insure these risks? Cooke and Kousky nsf# 0960865."— Presentation transcript:

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

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 Source: NAIC; 2005/6 US and FL estimates from the Insurance Information Institute. Measure of firm profitability

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

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

8

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

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