Large Fires and the Rise of Fire Insurance in Pre-war Japan

Tetsuji Okazaki, Toshihiro Okubo and Eric Strobl

No 23-016E, CIGS Working Paper Series from The Canon Institute for Global Studies

Abstract: We explore the role that large fires played in the early developed of the fire insurance industry of pre-WWII Japan. To this end we construct a prefecture level data set spanning thirty years. Our econometric results show that large fires led to an increase in new policies and policy renewals, a result that is in line with historical narratives that insurance companies used these events to advertise their business. We also show that this subsequent surge in renewals and new policy holders led to more fraudulent behaviour by increasing the number of small fires due to arson, whereas there was no effect on unintentionally set small fires. While we are unable to identify whether this was due to adverse selection of new policy holders or moral hazard behaviour of existing ones, anecdotal evidence that is more likely to have been the latter. Key words : Fire insurance, Disaster, Moral hazard, Adverse selection, Japan JEL classification numbers : G22, G52, N25

Pages: 35
Date: 2023-10
New Economics Papers: this item is included in nep-his
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Working Paper: Large Fires and the Rise of Fire Insurance in Pre-war Japan (2023)
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