Journal
JOURNAL OF RISK AND INSURANCE
Volume 87, Issue 2, Pages 319-349Publisher
WILEY
DOI: 10.1111/jori.12277
Keywords
-
Categories
Ask authors/readers for more resources
This article considers lender-level index insurance as a means of expanding access to credit in disaster-prone communities. In this approach, the lender transfers the disaster risk of loans in its portfolio by contracting on an observable measure of the catastrophe. I develop and calibrate a dynamic, stochastic model using data from a community lender in Peru that is vulnerable to El Nino-related flooding. The modeled lender can insure against El Nino using an index-based product that is available for purchase by financial intermediaries in Peru. I examine how premium rates, basis risk, and background risk may influence the lender's insurance decision and credit supply. Overall, the results suggest that lender-level index insurance holds promise for reducing disaster-related credit supply shocks and expanding credit access in vulnerable communities.
Authors
I am an author on this paper
Click your name to claim this paper and add it to your profile.
Reviews
Recommended
No Data Available