Disaster insurance or a disastrous insurance

Indeed, the higher the premium rate, the greater the incentives to “separate” the good from the bad risks. [...] The model illustrates that increasing the premium rate to improve the financial situation of the reinsurance comes at a high cost to the taxpayer. [...] This author does not address the problem of risk selection, and he assigns the depletion of reserves of the public reinsurance company (which lead to the collapse of the system in 1999) to an exceptional succession of high damage years in the 1990s. [...] Generally, the number of houses (H), the premium rate (θ) and the commission rate (γ) increase the number of insurers, while the damage probabilities (pi) and the fixed costs (f , F ) decrease the number of them. [...] This cost is the sum of the expected losses of the reinsurer and the premium payments of the final consumers.20 Note that, given the unique premium rate, the direct cost of insurance to final customers is simply 2Hθ, i.e.