ABSTRACT
Theoretical arguments regarding the effect of corporate social responsibility (CSR) on firm liability risk are abundant; however, empirical evidence about this relationship is scarce. We investigate the relationship between CSR and the personal liability risk of a firm's directors and officers. We argue that companies with better CSR performance represent a better underwriting risk for directors' and officers' (D&O) insurance providers and, therefore, have a lower cost of insurance. Our results show that firms with better CSR performance are more likely to purchase D&O insurance and have a lower premium-to-coverage ratio, known as the insurance rate-on-line. We also show that this risk-reduction effect is stronger for firms that operate in a high-risk environment and have higher sales growth. These results provide evidence that CSR can be used as a risk management tool to mitigate liability risk and suggest which firms benefit most from this effect.
ABSTRACT
This paper investigates the impact that volunatry or required insurance will have on the incentive to adopt loss mitigation measure. We show that several factors impact on the amount of mitigation that that an individual is likely to employ: The amount of insurance coverage. Insurance reduces the difference between incomes in disaster and non-disaster states of the world. Hence, there is less incentive for individuala to adopt loss reduction measures if they are required to purchase insurance. The estimate of the risk. If individuals underestimate the probability of an earthquake they will very likely underinvest in mitigation. The relationship between premiums and investment in loss mitigation. Insurance may encourage mitigation by conveying information through premium reductions for investment in loss reduction (AU)
