Why do private markets for catastrophe insurance fail?

First the conference planners must be complemented for their foresight to put catastrophe insurance on the agenda for this conference, long before Hurricane Katrina crashed into New Orleans. As Katrina illustrates, the problems affecting catastrophe insurance in the United States are taking on, well, catastrophic proportions. Major changes are required in how the government intervenes in each of the major catastrophic risks—earthquakes, floods, hurri- canes, and terrorism. Turning to the task at hand, it is always a pleasure and enlightening to read a paper by David Cummins (2006). This one is no exception. My comments follow the lines of David’s paper, taking up these topics in turn: • Why do private markets for catastrophic risks fail? • Should the government pick up the slack? • And, if so, how is this best done?