American Risk and Insurance Association — Founded in 1932

2006 Robert I. Mehr Award

David W. Sommer
David W. Sommer

The recipient of the 2006 Mehr Award was David W. Sommer, University of Georgia, for his article “The Impact of Firm Risk on Property-Liability Insurance Prices,” 1996, The Journal of Risk and Insurance, 63(3): 501-514.

Abstract

This article examines the impact of an insurer’s level of insolvency risk on the prices the insurer obtains for its products in the property-liability insurance market. The measures of insolvency risk used are those implied by the option pricing model of insurance. The key finding is the existence of a negative relation between insolvency risk and insurance prices. This implies that property-liability insurers are penalized for default risk through lower prices, despite the existence of guaranty funds. Other firm-specific determinants of insurance prices are also identified. The results have significant implications for insurance researchers and regulators.