Insurance and climate-driven extreme events

Müller–Fürstenberger, Georg; Schumacher, Ingmar

doi:10.1016/j.jedc.2015.03.002

Cited by 21 publications

(5 citation statements)

References 27 publications

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“…Similarly, in the same supranational context, even in non-related areas, it has been demonstrated already the correlation between "Sustainability", corporate governance, the value of the assets and the influence it has on a company's share performance [40].…”

Section: The Esg Experience a New European Approachmentioning

confidence: 87%

Insurance against Natural Hazards: Critical Elements on the Risk Premium Evaluation in the Italian Context

Pagano

Romagnoli

Vannucci

2020

Environmental and Climate Technologies

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The aim of this paper is to highlight the insurance dynamics in relation to catastrophic events and how the insurance companies approach the insured parties (contractors) for the definition of a tailored insurance policy contract. Within this study the emphasis has been addressed more on the regulatory situation in the Italian context as a key example of the existing contractual problems regarding the drafting of insurance contracts against natural hazards. In particular, the study defines the drawbacks of having information asymmetry between the parties towards several substantial elements of the policy agreement, including the definition of the overall risk, exposure, vulnerability and the consequential insurance premium. This study provides an overview of the possible calculation as a specific one based on the risk / premium assessment tool of the Exceedance Probability curve (EP curve) method used by insurance companies. This method focuses on some of the most important insurance parameters for determining the insurance premium and the possible indemnity in relation to the risk related to natural hazards. In the results and discussion, the research reports on how an information discrepancy on contractual transparency appears evident in fact creating an obstacle to facilitate the access to the data referred to in the risk calculation inherent in the asset and obviating the information discrepancy, allowing the private individual to use the information consciously. With the presentation of a risk calculation tool based on the EP curve and relative loss or exceedance, the study shows a possible correlation between insurance dynamics and the new environmental, social, governance (ESG) parameters for implementation on the financial markets.

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Section: The Esg Experience a New European Approachmentioning

confidence: 87%

Insurance against Natural Hazards: Critical Elements on the Risk Premium Evaluation in the Italian Context

Pagano

Romagnoli

Vannucci

2020

Environmental and Climate Technologies

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“…The catastrophic events are modelled as a Poisson jump process (Gollier, 1994;Keller et al, 2004). We assume that the frequency of the catastrophic event can be aected by the mitigation eort (Muller-Furstenberger and Schumacher, 2015;Barro, 2015Barro, , 2009. We demonstrate that the adoption of both mitigation and adaptation strategies, is able to reduce the volatility of the economic growth rate because it reduces the frequency of the catastrophic events.…”

Section: Introductionmentioning

confidence: 93%

The Day After Tomorrow: Mitigation and Adaptation Policies to Deal with Uncertainty

2021

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The catastrophic events are characterized by "low frequency and high severity". Nevertheless, during the last decades, both the frequency and the magnitude of these events have been significantly rising worldwide. In 2021, the European Commission adopted a new Strategy on Adaptation to Climate Change aiming to reinforce the adaptive capacity and minimize vulnerability to the effects of climate change and natural catastrophes. In a continuous time framework over an infinite horizon, we solve in closed form the problem of a representative consumer who holds a production technology (firm) and who optimises with respect to both the intertemporal consumption and the mix between an insurance (adaptation) against the magnitude of the catastrophic losses, and an effort strategy (mitigation) aimed at reducing the frequency of such losses. The catastrophic events are modelled as a Poisson jump process. We then propose some numerical simulations calibrated to the country-specific data of the five main European economies (Germany, France, Italy, Spain, and Netherlands). Our model demonstrates that an optimal mix of mitigation/effort strategies allows to reduce the volatility of the economic growth rate, even if its level may be lowered due to the effort costs. Simulations allow us to also conclude that different countries must optimally react differently to catastrophes, which means that a one-for-all policy does not seem to be optimal.

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“…In recent years, several theoretical studies have considered natural disaster risks and growth in particular (e.g., Akao and Sakamoto, 2018;Ikefuji and Horii, 2012;Müller-Fürstenberger and Schumacher, 2015).…”

Section: Related Literaturementioning

confidence: 99%

Macroeconomic Consequences of Natural Disasters: A Modeling Proposal and Application to Floods and Earthquakes in Turkey

Hallegatte¹,

Jooste²,

McIsaac³

2022

Policy Research Working Papers

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The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent. Policy Research Working Paper 9943Turkey is vulnerable to natural disasters that can generate substantial damages to public and private sector infrastructure capital. Earthquakes and floods are the most frequent hazards today, and flood risks are expected to increase with climate change. To ensure stability and growth and minimize the welfare impact of these disasters, these shocks need to be managed and accounted for in macro-fiscal and monetary policy. To support this process, the World Bank Macrostructural Model is adapted to assess the macroeconomic effects of natural (geophysical or climate-related) disasters. The macroeconomic model is extended on several fronts: (1) a distinction is made between infrastructure and non-infrastructure capital, with complementary or substitutability between the two categories; (2) the production function is adjusted to account for short-term complementarity across capital assets; (3) the reconstruction process is modeled in a way that accounts for post-disaster constraints, with distinct processes for the reconstruction of public and private assets. The results show that destroyed infrastructure capital makes the remaining non-infrastructure capital less productive, which means that disasters reduce the total stock of capital, but also its productivity. The welfare impact of a disaster-proxied by the discounted consumption loss-is found to increase non-linearly with direct asset losses. Macroeconomic responses reduce the welfare impact of minor disasters but magnify it when direct asset losses exceed the economy's absorption capacity. The welfare impact also depends on the pre-existing economic situation, the ability of the economy to reallocate resources toward reconstruction, and the response of the monetary policy. Appropriate macro-fiscal and monetary policies offer cost-effective opportunities to mitigate the welfare impact of major disasters. This paper is a product of the Macroeconomics, Trade and Investment Global Practicea and the Climage Change Group. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world.

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Insurance and climate-driven extreme events

Cited by 21 publications

References 27 publications

Insurance against Natural Hazards: Critical Elements on the Risk Premium Evaluation in the Italian Context

Insurance against Natural Hazards: Critical Elements on the Risk Premium Evaluation in the Italian Context

The Day After Tomorrow: Mitigation and Adaptation Policies to Deal with Uncertainty

Macroeconomic Consequences of Natural Disasters: A Modeling Proposal and Application to Floods and Earthquakes in Turkey

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