Long-Term Property Insurance

Journal of Insurance Regulation

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Date Published 2010
Version Working Paper #2010-04-19
Primary Author Dwight Jaffee, Howard Kunreuther, and Erwann Michel-Kerjan
Other Authors
Theme Disaster Risk Mitigation and Housing Finance


This paper proposes long-term insurance (LTI) as an alternative to the standard annual property insurance policy. LTI offers significant benefits to many stakeholders by reducing insurers’ administrative costs, lowering search costs, providing stability to consumers and incentivizing property owners to invest in risk-reducing measures. A simple two-period model illustrates situations that would make a long-term contract attractive to both insurers and consumers under competitive market conditions. Recognizing potential difficulties in modifying regulatory systems in 50 states, and using the history of the development of long-term mortgages in the United States as a benchmark, we discuss the applicability of long-term contracts for reforming the federally-run U.S. National Flood Insurance Program (NFIP). Multi-year flood insurance policies would encourage investments in cost-effective mitigation measures and provide stability to the program, in view of the large number of homeowners who cancel their annual policies after just two or three years. The paper concludes with issues and questions that need to be addressed for multi-year property insurance policies to be considered by private sector firms.

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