Scholarship (ICLE)
Are Insurance Prices Always Forward Looking? Evidence from the 2011 Catastrophic Tornadoes
Abstract
This study investigates the post-catastrophe pricing strategies of insurance companies, focusing on the aftermath of the 2011 tornadoes in Alabama and Missouri. We analyze the influence of substantial losses incurred during these events on insurance premiums and rate filings in the subsequent years. Our results show that companies that incurred significant losses experienced larger premium increases and filed for more rate hikes in the years following the events compared to their counterparts operating in the same area, facing similar risks, but not suffering significant losses. This contradicts the forward-looking insurance pricing mechanism.