This website uses cookies to ensure you have the best experience. Learn more

Why Are More People Who Are At Risk Of Suffering Losses From Disasters (Both Natural And Man Made) Not Insured Against Them, And What Policies Might Increase The Prevalence Of Insurance Against Catastrophic Losses?

1956 words - 8 pages

Examination Number: B030015Course: Economics 2Course Organiser: Michael WattsDate of Submission: 30/01/2014Question Why are more people who are at risk of suffering losses from disasters (both natural and man-made) not insured against them, and what policies might increase the prevalence of insurance against catastrophic losses?Word Count: 1941IntroductionInsurance is the one of the world's oldest financial tools. Traders have practiced it since as long as 3rd millennia BC. When operating under a certain assumptions and circumstances, it proves to be a tool to pool risk amongst a set/category of people. Insurance as we know it today traces its origins to the 17th century in the United Kingdom. Research in modern insurance has grown and expanded from finance to behavioral economics.In order to understand the behavioral patterns with respect to buying insurance and the reasons behind these exemplary behaviors, it is imperative to understand the benchmark models of insurance. The benchmark models of demand and supply play an almost equal role in determining what decisions the buyer and seller of the insurance make. These decisions heavily depend on the behavioral patterns in the real world and this is where the behavioral economics is intertwined with classical economics.Benchmark model of DemandThe benchmark model of demand (for insurance) is a classical approach. This model assumes that it is in the best interest of the consumer to maximize his/her expected utility. The expected utility theory also explains why buyers perceive a 'sure thing' as more desirable when compared to uncertain risk. Even though this model is basic and does not account for real world behavior, it still serves as a great starting point when discussing demand side inconsistencies. (Kunreuther, Pauly, & McMorrow, 2013)According to the expected utility theory, risk-averse buyers of insurance are ready to pay an insurance premium that would be greater than their expected loss. The difference between insurance premium and expected loss is defined as the 'risk premium' that the buyer is willing to pay in order to maintain his/her preference of a 'sure thing' over an uncertain loss. Risk premium that a risk averse buyer of insurance is willing to pay increases pertaining to two reasons. Firstly, as the amount at risk increases even though the probability of the potential loss decreases. This can be explained using the diminishing marginal utility of money. For instance, when insuring ten identical pieces of jewelry against theft, the decrease in utility with the loss of the tenth piece is higher than the loss of the first piece. Secondly, risk premium that a buyer is willing to pay increase with his/her averseness to risk. Referring back to the fundamental assumption, a risk averse buyer prefers to have certainty to an uncertain risk. (Kunreuther, Pauly, & McMorrow, 2013)Another factor governing the behavior of the buyer of insurance is to find the optimum deductible. A...

Find Another Essay On Why are more people who are at risk of suffering losses from disasters (both natural and man-made) not insured against them, and what policies might increase the prevalence of insurance against catastrophic losses?

Against Affirmative Action by JumboMoos Why AA hinders the non-minority and the minority by putting them in a job they are less/not qualified for

596 words - 2 pages many cases affirmative action has set quotas for a certain amount of a certain minority. This is highly discriminatory against those that are more qualified but did not get in because the college had to meet a quota. This is unfair; one should be accepted into a college based on their academic merits, not their race. Using race as a judge of things all throughout history has proven disastrous, why is affirmative action any different?

What are Perfume and Cologne Made of?

692 words - 3 pages What is perfume? Some people may say that perfumes are a fragrant liquid created by essential oils and other ingredients. Essential oils are responsible for the odor and makes up the fragrance of a plant and are usually extracted from flowers or spices to make a certain scent (Wong, 2013). Perfumes are also a refreshing and pleasant smell that women and men usually spread around their body or clothes. Each scent of perfume depends on a certain

What are the reasons for and against gay marriage

2689 words - 11 pages , 2010) Moreover, gay marriage is a personal commitment that the society should not be dictating. Withholding the right to sign a legal contract between two loving people is a severe violation of human rights. What are the reasons for and against gay marriage A marriage is a relationship between two people that love each other. Many couples are desired to get married not only for the recognition of relationship from the society, but also the

"Wuthering Heights" by Emily Bronte: Violence in the Novel - The recurring scenes of violence, characters who are violent, and why others do not stop them

1310 words - 5 pages Heights is book lacking of 'moral', by several hints. One of which is more noticeable - Isabella's expression of her own belief, that 'treachery and violence, are spears pointed at both ends - they would those who resort to them, worse than their enemies'. To see if this is apt to be Emily Bronte's own view on violence, we may find read in the light of the fates of characters. Heathcliff, who intends to hurt mainly Edgar by injuring young

"What are the basic tenets of Realism and Naturalism? why are Stanislavski's System and Chekov's plays perfect vehicles for them?

1034 words - 4 pages reality is a blend of both. And Chekov was the master of that form. He so cleanly blended the two ideas that it is impossible to separate them into separate places. And through this masterpiece of dramatic writing, Stanislavski's systematic method of creating truth can have a fighting chance at reaching the heights that it is capable of. So it is that through a mixture of the two schools of thought and the work of the two men who have mastered it

Why Students are Not Reading and Ways to Get them to Read More

1258 words - 5 pages Why Students are Not Reading and Ways to Get them to Read More "We shouldn't teach great books. We should teach a love of reading." B. F. Skinner "What is a reader?" and "What makes a good reader?" Out of 100 eighth graders surveyed at a middle school in Pennsylvania, 73% of them said that you have to read a lot and practice reading. When the same one hundred eighth graders were asked how they feel about reading, 55% said they love it

What explanations are offered for violence against women? (A look at Biblical and media influence on violence against women)

711 words - 3 pages toys to be picked up, played with and dumped when the men get bored.One would think that this idea would be strongly repudiated by the Christian belief however even in the Bible there is occasions of sexual violence against women:"So the man took his concubine and sent her outside to them, and they raped her and abused her throughout the night, and at dawn they let her go."[Judges 19:25]Many myths surround violence against women but these are not

What are we made of?

1069 words - 5 pages which is a good way to live and a awesome thing to have in your spirit. Now, some think that because of love they kill themselves and that is not positive and while this is a true statement it is not the whole story. Love also made them get married and sneak around which are both exciting which is positive. Marriage is supposed to be this amazing thing that is the greatest gesture of love which is why they get married and they are so positive or

Trade unions: What they are. Arguments for and against. Affects of changing government. developments. etc

705 words - 3 pages having a secure job and high productivity, at the cost of the outsider workers, consumers of the goods or services produced, and the shareholders of the unionized business. The ones that are likely to lose the most from a trade union are those who are unemployed or at the risk of unemployment or who are not able to get the job that they want in a particular field. The so-called insider-outsider theory analyses this problem-Usually, the marginal

The World's Fight Against Microbes. Speaks Of How The Misuse Of Medicines, And The Destruction Of The Environment Are Making Diseases Break Out, And Become More Resistant

2431 words - 10 pages emergence of resistant mutant organisms' (Garrett 419).Infectious diseases thought to be common, and relatively harmless are now becoming lethal to people of all ages, race, and socioeconomic status because of the misuse of medicines, which make the diseases ever more drug resistant, and short sighted political policies. It now seems that the microbes now have the macrobes on the run.Consider the difference in size between some of the very

Man Made Disasters

763 words - 4 pages I have recently become involved in my family genealogy. This path has taken me to a better understanding of historical events giving them a personal attachment. I have created timelines with certain family members to try to understand the world that they lived in and how they made certain decisions and lived day today. Along this route of discovery I have seen my ancestors lived through certain natural and man-made disasters. One such disaster

Similar Essays

Why Are More People Who Are At Risk Of Suffering Losses From Disasters (Both Natural And Man Made) Not Insured Against Them, And What Policies Might Increase The Prevalence Of Insurance Against...

1956 words - 8 pages Examination Number: B030015Course: Economics 2Course Organiser: Michael WattsDate of Submission: 30/01/2014Question Why are more people who are at risk of suffering losses from disasters (both natural and man-made) not insured against them, and what policies might increase the prevalence of insurance against catastrophic losses?Word Count: 1941IntroductionInsurance is the one of the world's oldest financial tools. Traders have practiced it since

Natural And Man Made Disasters Essay

2100 words - 8 pages Both natural and man-made disasters are considered as events that can cause a large amount of losses and correlated with a small probability. It is rational for the population to have insurance against such events because most people are risk adverse: a risk adverse person means that the person will not prefer risk and will try to minimalize it. However, there is only a proportion of the population taking insurance against such events , without

Human Population Are At Risk From Outbreaks Of New Diseases Are There Reasons Why Modern Humans Might Be More Prone To Infectious Disease Epidemic

1234 words - 5 pages Human population are at risk from outbreaks of new diseases Are there reasons why modern humans might be more prone to infectious disease epidemics, and where do these come from? According to WHO (World Health Organisation) 2004 approximately 75% of new emerging infectious diseases are zoonotic (i.e. derive from animals). WHO (2011) also listed HIV/AIDS, as one of the main causes of death in the past decade. We are more prone to infectious

Natural Disasters Are Not Purely Natural

930 words - 4 pages extent to which human populations are exposed economically, socially and politically is directly proportional to the occurrences of disasters. Researchers have shown that the worldwide increase in the number of disasters leading to both life and material losses is directly proportional to the man-made triggers (Alexander, 2009). In Africa, most of the natural disasters are not spontaneous events, but rather progressive occurrences. Drought, land