The collapse of the US terrorist insurance market after September 11 was the result of insurance firms' aversion to covering large-scale catastrophes, according to a new joint study by co-authors Dwight Jaffee, Willis Booth Professor of Banking, Finance and Real Estate at the Haas School, and Thomas Russell, professor of economics at Santa Clara University's Leavey School of Business.
Temporary government intervention, the study found, would help revive the terrorist insurance market after an event as extreme as the Sept. 11 attacks and help stabilize affected industries. Real estate and airline industries were hurt significantly by the insurance market turmoil.
Insurance premiums skyrocketed after September 11, while coverage was severely limited or cancelled, leaving "trophy" office buildings without required coverage, and potentially disrupting new construction projects Yet, the insurance industry had sufficient reserves to cover the insured losses -in excess of $50 billion- incurred on the day of the attacks, according to Jaffee and Russell.
"Insurance firms," Jaffee said, "shy away from large risks if the size of the risks is uncertain. But insurance firms are willing to provide auto insurance, since the size of the risks is well known."
Jaffee and Russell conclude that aversion to providing catastrophic event insurance has also been observed following natural disasters such as Hurricane Andrew in 1992 and the Northridge earthquake in 1994. This tends to dissipate over time if no further events occur, they said.
"Government support of the market for terrorist insurance could help bridge such disruptions, both currently and in the future," said Jaffee.
He said such intervention could come in the form of direct government insurance, having the government be the insurer of last resort (such as offering guaranteed catastrophe bonds), or having government be the lender of last resort. The US Senate and House of Representatives have now passed separate bills to support the market for terrorist insurance, Jaffee said, and a compromise bill is expected shortly.
"The goal of government should be not to replace the market, but rather to calm the market until it restores itself," the report concludes. "Generally speaking, the less government intervention the better, but the key is to make sure that capital continues to flow into these lines."
The study is on the Web at http://faculty.haas.berkeley.edu/jaffee/Papers/JRInsFeb02.pdf.
The 25th Annual Real Estate Economics Symposium, organized by the Haas School's Fisher Center for Real Estate and Urban Economics, will focus on how the economic, political, and social shifts of 2002 have affected the economies and real estate markets of the Bay Area, California, and the United States.
The conference will be held on Monday, November 25, at the Fairmont Hotel in San Francisco from 8:00 a.m. to 5:00 p.m.
Haas School student volunteers interested in real estate and Haas School faculty are invited to attend free of charge but must register beforehand. This event has been known to sell out, so participants are encouraged to register by November 15.
Kenneth Rosen, co-chair of the Fisher Center and California State Professor of Real Estate and Urban Economics, will give his annual economic and real estate forecast. Robert Edelstein, Fisher Center co-chair and real estate development professor, will give the opening address.
Industry speakers include Douglas Shorenstein, chairman and CEO of the Shorenstein Company, on "Planning for Uncertain Times for Real Estate Investors;" Dennis O'Brien, president of The O'Brien Group, on "Housing Boom or Bust;" and Jon Q. Reynolds, CEO of Reynolds & Brown, and Peter Bedford, chairman and CEO of Bedford Property Investors, on "Keeping the Faith in Commercial Real Estate." San Francisco Supervisor Gavin Newsom will also give a talk, titled "San Francisco's Future.There is One."
To register for the symposium, visit the Fisher Center's registration form at http://groups.haas.berkeley.edu/realestate/ExecEd/regform.asp or call 510-643-6109.
A summer trip to Shanghai uniquely prepared a panel of Berkeley's Management of Technology (MOT) students to present their insights into Chinese-style innovation to an audience of 300 Chinese entrepreneurs in Santa Clara this month.
Amir Sharif, MBA 03, and Anoop Sinha, engineering Ph.D. candidate, as well as Mayfield Fund General Partner Todd Brooks, spoke at the Hua Yuan Science and Technology Association, the largest Chinese entrepreneurs' organization in the Bay Area, on October 20 about the differences between Chinese-style and Silicon Valley-style entrepreneurship.
Sharif and Sinha were among the seven Mayfield Fellows from the Haas School and the College of Engineering who embarked on the 2002 Mayfield Fellows Shanghai Trek in May 2002 to learn about technological innovation in Asia's fastest-growing economy.
The Mayfield Fellows program is run by the Management of Technology program at UC Berkeley and selects up to 12 graduate students each year for paid internships at venture capital-funded Silicon Valley startups every summer. The Shanghai trip, the first of its kind, was initiated by the Mayfield Fellows themselves and was partially funded by the MOT program.
"We are thrilled that the students were able to incorporate a week in China into their summer internships in Silicon Valley," said Andrew Isaacs, executive director of MOT. "Understanding the economies of East Asia is essential to high-tech entrepreneurship. Sharing these impressions with colleagues at Berkeley and in Silicon Valley adds to the value of the experience."
The students visited four entrepreneurial ventures, two venture capital firms, one incubator, and two multinational corporations to get a perspective on business development in China.
They found that major government reforms, low manufacturing costs, good infrastructure, and support for entrepreneurship gave them a new perspective on the economic potential of Shanghai and China. While intellectual property and brand protection were practically nonexistent, they were positively surprised by the entrepreneurial spirit and modern amenities of Shanghai.
Said Sharif: "This marvelous city shattered almost any preconception that I held of China." His conclusion was: "The future of the world is in Asia."
Chris Barton, MBA 00, and his start-up company Shazam were highlighted in The New York Times on October 28 in the article, "Name That Tune, From Your Cellphone." Read the full text at http://www.nytimes.com/2002/10/28/technology/28SHAZ.html? ex=1036472400&en=76043d00c663cfad&ei=5062&partner=GOOGLE.
Commenting on the lack of energy concerns in the governor's race, Severin Borenstein, the E.T. Grether Professor in Public Policy and Business Administration, was quoted in the following news sources:
A study by Terrance Odean, assistant professor in the Finance Group, on investor behavior was cited in the Waterloo Record of Canada on October 26. Read the full article, titled "Know your investing quirks, professors say," at http://www.therecord.com/business/crowley/business_crowley_02102610352.html.
Janet Yellen, the Eugene E. and Catherine M. Trefethen Professor of Business Administration, commented on investment spending in the October 26 Washington Post article, "Fed Seems Headed for Interest Rate Cut." Read the full article at http://www.washingtonpost.com/wp-dyn/articles/A19446-2002Oct25.html.
The investor behavior study by Terrance Odean was featured in the Australian Financial Review on October 26 in an article, titled "Lies and Statistics."
P. Gregory Conlon, who completed the executive education program at Haas, was included in "Snapshots of candidates for state treasurer," by the Associated Press on October 25.
Bay Area cartoonist Scott Adams, MBA 86, creator of Dilbert, was featured in the Financial Times on October 25 in the article "Hate your employer? Don't get mad, get funny." The story focused on his new book, titled Dilbert and the Way of the Weasel.
Severin Borenstein was quoted in The Bond Buyer on October 25 in the article, "California History Lesson." He remarked on long-term energy contracts.
The East Bay Business Times announced the seventh annual Women in Leadership Conference at Haas on Saturday, October 26, in an article, titled "Women Leaders Meet at UC-Berkeley," on October 24. Read the full article at http://eastbay.bizjournals.com/eastbay/stories/2002/10/21/daily56.html.
The Daily Cal covered a fundraising event at the home of Haas professor David Teece, director of the Institute of Management, Innovation, and Organization for Mayor Shirley Dean on October 21. Read the article "Campaign Notebook: On the Road with 'Little Shirley': No Eats But Plenty of Meets," in the October 23 issue at http://www.dailycal.org/article.asp?id=9919.
Ilse Evans, executive director of MBA Career Services and Initiatives, appeared in CBS Marketwatch on October 23 in the segment, "Gender Gap."
David Speer, MBA 89, appeared in The Almanac's "Voter Guide: Menlo Park council candidates," published on October 23. Read the full text at http://www.calmanac.com/thisweek/2002_10_23.mnlbios.html.
Scott Adams was featured in the San Francisco Chronicle on October 23 in the article, "Playing the angles, cutting corners - it's a way of life." Read the full article at http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2002/10/23/BU56512.DTL.
Jonathan Leonard, the Thomas J. Fitzmyers and Barclay Simpson Distinguished Professor of Corporate Responsibility, was quoted in the Wichita Business Journal on October 21 in the article, "New family leave program has California small businesses concerned." Read the full article at http://wichita.bizjournals.com/wichita/stories/2002/10/21/focus2.html?t=printable.
The San Jose Mercury News ran an article on October 21, titled "Experts on San Jose, Calif. - Area Economy See High-Tech Rebound Late in Decade," in which Ken Rosen, the California State Professor of Real Estate and Urban Economics, commented on the Silicon Valley tech depression.
Severin Borenstein's study on whether companies in Chapter 11 harm their rivals was included in Business Week on October 21 in the article, "Bankruptcy Reform Won't Fix Telecom."
Janet Yellen wrote an article titled "The Big Engine That Should," published in Newsday on October 21. She commented on the issues surrounding the current US recession. Read the full article at http://www.newsday.com/news/local/longisland/politics/ny-vpyel202970601oct20,0,4658925.story? coll=ny-lipolitics-print.
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