I need help with this discussion question. Some questions for consideration. Why might insurers need to limit the coverage for catastrophe? Do you think that catastrophe Government coverage is necessary? What can property casualty insurers do if reinsurance coverage is not available? If coverage isn't available to homeowners and business owners what options do they have to protect their investments in real property? Do you advocate insuring the gulf coast regions with property below sea level? What improvements could Houston make to protect Houston against future hurricane damages after the $11 Billion in losses from Hurricane Harvey? Which risk mitigation measures worked well to save lives? Catastrophe Losses Are Difficult to Forecast Adverse selection and moral hazard problems are common in many insurance markets. Catastrophe risk insurers face an additional challenge, which arises from the fact that the total value of losses for a pool of insured properties or individuals is often exceptionally difficult to predict. Forecasting annual losses from hazards like automobile accidents that only affect one or two members of a pool at a time is much easier than forecasting losses from large-scale catastrophes such as floods, hurricanes, or terrorist attacks. When the losses incurred by individual members of an insurance pool are more or less independent of one another, the average loss rate per policy is likely to be stable over time. While the accident rate has gradually declined over the past 15 years, it changes relatively little from year to year. It is difficult to predict whether any particular vehicle will be involved in an accident, but based on the data presented we can forecast with high confidence that about 4.5 percent of all passenger cars will be involved in some kind of accident over the next year. Because large scale catastrophes have the potential to affect many members of an insurance pool simultaneously, spreading risk across a large number of members may not be sufficient to ensure that average losses per policy are stable over time. Flood losses are not independent of one another; a single flood event can damage hundreds or even thousands of properties. Even though the NFIP insures a pool of millions of properties, the average loss rate per policy varies considerably from year to year. In some catastrophe-risk insurance markets, forecast accuracy also suffers from a lack of relevant historical data and experience. This is a particular problem when catastrophes are rare, and when the character of those events is likely to change over time. For example, U.S. commercial property and casualty insurers had almost no experience forecasting losses from large-scale terrorist attacks prior to September 11, 2001. A recent report by the President's Working Group on Financial Markets on the availability and affordability of insurance for terrorism risk found that while modeling of terrorism risk has improved since 2001, insurers continue to have limited confidence in the models they use for evaluating this risk exposure. When annual losses for a pool can be forecast with reasonably high precision, it is relatively easy for an insurance provider to manage risk. As long as its underwriting procedures ensure that the average premium paid by members of the pool is at least as large as the average loss rate per member, it is likely that in any given year total premium revenues for the pool will be sufficient to pay all claims. If, as in our automobile accident example, losses are independent across members of a pool, increasing the size of the pool actually makes it easier for an insurer to manage risk, because the more members that are included in the pool, the more stable will be the average loss rate per member. Losses from catastrophes are not independent across exposures, and therefore they are much more difficult to manage. A severe hurricane, for example, can cause damage over tens of thousands of square miles, so even if an insurer provides windstorm coverage for properties scattered throughout a state, average losses per property are likely to be exceptionally high in hurricane years. Since catastrophes are infrequent but costly, annual premium revenues for a pool of exposures that exceed the value of claims in most years may not be sufficient to pay all claims in those rare years when a severe event occurs. Insurance providers work to address this problem by pooling risk across time or by diversifying the risk exposure more broadly by sharing it with other insurers.