This paper provides analysis on insurance runs, which are defined as simultaneous requests to cancel insurance contracts by a large number of policyholders, as a potential source of systemic risk in insurance sectors. Contrary to runs on banks, the heterogeneity of risk management ability among policyholders enables insurance runs to have a direct impact on insurers’ solvency. We show that policyholders with high risk sensitivity are more likely to cancel their insurance contracts, which has a negative effect on the solvency of the insurer hit by a run. However, insurance runs may also induce the remaining policyholders to manage their own risks more prudently, which has a positive effect on the insurer’s solvency. We present numerical examples on whether or not the overall impact of the insurance runs exacerbates such solvency.

We further study how a resolution policy should be designed to maximize the social welfare, which is the sum of the consumer surplus and net worth of the insurer acquiring insurance contracts from the other insurer going bankrupt. An increase in the insurance premium may improve the net worth of the insurance contracts, but it may also accelerate the exit of policyholders managing their own risks more prudently. We numerically analyze how the optimal insurance premium varies with the coverage plans; the systematic risks and; the severity of the risks exposed to consumers without insurance.

Preface
Executive Summary

Chapter 1 Introduction

Chapter 2 Mechanism of Insurance Runs and Their Impact on Insurer Solvency
　Section 1 Introduction
　Section 2 Characteristics of Insurance and Possibility of Insurance Runs
　Section 3 Effects of Insurance Runs on Insurer Solvency
　Section 4 Policy Implications for Insurance Supervision and Discussion of Results
　Section 5 Conclusion

Chapter 3 Resolution Framework for Insolvent Insurers and Policyholder Protection
　Section 1 Introduction
　Section 2 Current Resolution Framework for Insolvent Insurers
　Section 3 Theoretical Analysis of Insurance Resolution Mechanisms
　Section 4 Policy Recommendations for Improvement
　Section 5 Conclusion

Chapter 4 Conclusion

References
ABSTRACT