Title: Problems of insuring the risk of large failures
Author: David L. Bickelhaupt
Address: Faculty of Finance, College of Business, Ohio State University, Columbus, Ohio, USA
Abstract: Few business topics related to insurance have greater significance today than insurance for the risk of large failures. The catastrophic losses resulting from structural collapse and product failures are escalating throughout the world. They are a major cause of the $25 billion underwriting losses last year of the insurance business in the United States. However, such losses have increased everywhere, and no organization is completely immune from such risk. This paper looks at the problems created by these large exposures, both from the viewpoint of business (and other organizations) and insurers. The process of risk management is applied to identify and measure these property and liability risks, and then to determine what choices of treating the risks are available. Risk control and risk financing tools are discussed, with an emphasis on insurance solutions. The capacity problem, particularly in relation to the global ''liability insurance crisis'', is noted not merely as a dilemma for insurers but also for the insured parties and society as well. Changes in insurance contracts, such as deductibles and ''claims-made'' liability coverage, are seen as both solving some problems, and causing others. Some solutions outside of insurance may well be needed to bring these problems under control, such as legal and civil justice reforms in many countries. Insurance for large losses in such a scenario remains a fundamental part of the solutions, but must be coordinated with other developments in our changing world.
Keywords: product liability; product failure; liability insurance; insurance contracts; risk management; risk control; structural collapse.
Int. J. of Technology Management, 1987 Vol.2, No.3/4, pp.357 - 375
Available online: 27 May 2009