Corporate Management of Highly Dynamic Risks

Evidence from the Demand for Terrorism Insurance in Germany

authored by

Christian Thomann, Razvan Pascalau, J. Matthias Graf Von Der Schulenburg

Abstract

This paper investigates a corporation's risk management response to highly dynamic risks. Using a unique data set on the German terrorist insurance market, the paper tests whether corporate risk managers have a clear understanding of the probability distribution of highly dynamic risks or if risk managers learn from severe losses and base their decisions upon day-to-day experience. The paper further investigates whether risk managers become more confident in their risk management decisions over time. For this purpose, we apply Viscusi's prospective reference theory to a corporate context. We find that firms learn from single events when making their risk management decisions, and that risk managers become more confident with their risk management decisions over time.

Organisation(s)

Institute of Insurance Business Administration

External Organisation(s)

Ministry of Finance, Financial Institutions and Markets
SUNY Plattsburgh

Type

Article

Journal

GENEVA Risk and Insurance Review

Volume

37

Pages

57-82

No. of pages

26

ISSN

1554-964X

Publication date

03.2012

Publication status

Published

Peer reviewed

Yes

ASJC Scopus subject areas

Accounting, Business, Management and Accounting (miscellaneous), Finance, Economics and Econometrics

Sustainable Development Goals

SDG 16 - Peace, Justice and Strong Institutions

Electronic version(s)

https://doi.org/10.1057/grir.2011.3 (Access: Open)