Insurance against Losses from Natural Disasters in Developing Countries

Linnerooth-Bayer, J.; Mechler, Reinhard; Hochrainer, Stefan

doi:10.5595/idrim.2011.0013

Cited by 73 publications

(50 citation statements)

References 28 publications

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“…It is worth noting that compensation in case of extreme events is not an adaptation measure per se, since no climate change damage is prevented. This contrasts with insurance, which does not reduce the losses, yet reduces the follow-on economic impacts and thus stabilizes the income and consumption stream of the affected, and thus clearly reduces vulnerability and impacts (see Linnerooth-Bayer and Mechler 2007).…”

Section: Agricultural Insurance For Drought Risksmentioning

confidence: 99%

Financial adaptation to disaster risk in the European Union

Aakre

Banaszak

Mechler

et al. 2010

Mitig Adapt Strateg Glob Change

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Increasing losses from weather related extreme events coupled with limited coping capacity suggest a need for strong adaptation commitments, of which public sector responses to adjustments to actual and expected climate stimuli are key. The European Commission has started to address this need in the emerging European Union (EU) climate adaptation strategy; yet, a specific rationale for adaptation interventions has not clearly been identified, and the economic case for adaptation to extremes remains vague. Basing the diagnosis on economic welfare theory and an empirical analysis of the current EU and member states' roles in managing disaster risk, we discuss how and where the public sector may intervene for managing climate variability and change. We restrict our analysis to financial disaster management, a domain of adaptation intervention, which is of key concern for the EU adaptation strategy. We analyse three areas of public sector interventions, supporting national insurance systems, providing compensation to the affected post event as well as intergovernmental loss sharing through the EU solidarity fund, according to the three government functions of allocation, distribution, and stabilization suggested by welfare theory, and suggest room for improvement. Mitig Adapt Strateg Glob Change (2010) 15:721-736

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Section: Agricultural Insurance For Drought Risksmentioning

confidence: 99%

Financial adaptation to disaster risk in the European Union

Aakre

Banaszak

Mechler

et al. 2010

Mitig Adapt Strateg Glob Change

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“…When analyzing coverage data for flood risk globally, a clear imbalance of insurance penetration across countries becomes evident: flood insurance is practically nonexistent in least developed countries, like Sudan, where the victims absorbed over 80% of the losses from the severe flooding in 1998, and the state covered the rest with outside assistance [28]. This is in line with the overall picture for insurance across the world: The provision of risk transfer is still in its infancy in most developing countries, as shown by the distribution of insurance premiums: In 2010 Europe (37%) and North America (30%) were the largest insurance markets in terms of premium volume.…”

Section: Evidence Base and Methodologymentioning

confidence: 99%

Flood insurance schemes and climate adaptation in developing countries

Surminski

Oramas-Dorta

2014

International Journal of Disaster Risk Reduction

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Risk transfer, including insurance, is widely recognized as a tool for increasing financial resilience to severe weather events such as floods. The application of this mechanism varies widely across countries, with a range of different types and schemes in operation. While most of the analytical focus has so far been on those markets that have a long tradition of insurance, there is still a clear gap in our understanding of how this mechanism works in a developing country context. This paper assesses 27 insurance schemes that transfer the risk of economic losses arising from floods in low -and middle income countries, focusing on the linkages between financial risk transfer and risk reduction. This aspect is important to avoid the effect of moral hazard and has gained particular relevance in the context of the climate change adaptation discourse, where some scholars and practitioners view insurance as a potential tool not just for current risks, but also to address projected future impacts of a changing climate by incentivizing risk reduction. We therefore look beyond the pure financial risk transfer nature of those 27 insurance schemes and investigate any prevention and risk reduction elements. Our analysis suggests that the potential for utilizing risk transfer for risk reduction is far from exhausted, with only very few schemes showing an operational link between risk transfer and risk reduction, while the effectiveness and implementation on the ground remains unclear. The dearth of linkages between risk reduction and insurance is a missed opportunity in the efforts to address rising risk levels, particularly in the context of climate change. Rising risk levels pose a threat to the insurability of floods, and insurance without risk reduction elements could lead to moral hazard. Therefore a closer linkage between risk transfer and risk reduction could make this a more sustainable and robust tool.

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“…This could be related to the fact that schemes in those two income groups have only emerged recently and are often specifically designed to test the use of index-based risk transfer as a way to overcome enormous transaction costs, adverse selection, and moral hazard (Murphy et al, 2011). Nevertheless concerns about addressing basis risk, remain (Government Office for Science, 2010;Linnerooth-Bayer and Mechler, 2009). Disaster micro-insurance is common in low-income and lower middle-income countries, but property catastrophe insurance schemes are almost absent from these countries (Surminski and Oramas-Dorta, 2011).…”

Section: What Flood Insurance Products Do Exist?mentioning

confidence: 99%

“…the behaviour of those at risk. This can either be in a moral hazard 2 context, where insurance can lead to a more risky behavior, or as an incentive, where insurance can trigger risk reduction investments or the implementation of prevention measures (see for example the work of Kunreuther and colleagues at Wharton: Kunreuther, 1996;Kunreuther et al, 2013;Kunreuther and Pauly, 2006) and the work at IIASA by Mechler and Linnerooth-Bayer (Linnerooth-Bayer and Mechler, 2009;Linerooth-Bayer et al, 2011).…”

Section: Introductionmentioning

confidence: 99%

“…Recent work investigating the flood insurance provision in the United Kingdom includes Ball et al (2013), Stallworthy (2013), Penning-Rowsell et al (2014), and Surminski and Eldridge (2014). Flood insurance in the context of developing countries is receiving growing attention, as the work from Ranger et al (2011a), Lin et al (2007), Linnerooth-Bayer et al (2011) and Surminski and Oramas-Dorta (2013) show. Some studies are interested in legal aspects (Morgan and Stallworthy, 2012) and governance (Paudel et al, 2012) of flood insurance schemes.…”

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confidence: 99%

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