The role of public and private insurance in reducing losses from extreme weather events and disasters

Abstract

This article describes the challenges that victims, insurers and governments face in dealing with insurance for low-probability high-consequence events in both developed and developing economies. In developed economies, given their limited experience with catastrophes, there is a tendency for all three parties to engage in short-term intuitive thinking rather than long-term deliberative thinking when making insurance-related decisions. Here, public-private partnerships can encourage investment in protective measures prior to a disaster, deal with affordability problems and provide coverage for catastrophic risks. Insurance premiums based on risk provide signals to residents and business as to the hazards they face and enable insurers to lower premiums for properties where steps have been taken to reduce their risk. To address issues of equity and fairness, homeowners who cannot afford insurance could be given vouchers tied to loans for investing in loss reduction measures. The National Flood Insurance Program provides an opportunity to implement a public-private partnership that could eventually be extended to other extreme events, while the United Kingdom's Flood Re provides a good case study. In developing economies, insurance penetration is historically very low. This requires innovative solutions to catastrophic risk insurance such as risk pooling, parametric insurance and micro insurance. Nevertheless, the uninsured and uncompensated losses of disasters remain extensive, implying the need for public-private partnerships.

Managing climate change risk: the case of the Italian Churches

“…Taking into consideration a more technical and legal perspective, this agreement can be classified as a private contract, since the two contractors are two private entities. There are no state subsidies that characterize a multi-sector partnership, the so-called PPP (public-private partnership) (Kunreuther and Lyster 2016). All the contractual aspects are based on a private agreement without any imposition or intervention from the state.…”

“…Insurance seems to be suitable to cover this role, with flexible contracts that allow for an efficient risk reduction strategy. "Insurance premiums based on risk provide signals to residents and business as to the hazards they face and enable insurers to lower premiums for properties where steps have been taken to reduce their risk" (Kunreuther and Lyster 2016).…”

EQC and Extreme Weather Events (Part 2): Measuring the Impact of Insurance on New Zealand Landslip, Storm and Flood Recovery Using Nightlights

“…The potential role of insurance in mitigating disaster losses has been often discussed (see e.g. Kunreuther & Lyster (2016) In New Zealand, there has been significant research done investigating economic impact and recovery following earthquakes (e.g. Fabling, Grimes, & Timar, 2016, 2019Wood, Noy, & Parker, 2016).…”

EQC and Extreme Weather Events (Part 2): Measuring the Impact of Insurance on New Zealand Landslip, Storm and Flood Recovery Using Nightlights

“…The potential role of insurance in mitigating disaster losses has been often discussed (see e.g. Kunreuther & Lyster (2016) but the empirical literature on the effects of insurance on dynamics of recovery is surprisingly limited. Still, insurance is highlighted as an important part of international disaster risk reduction efforts (as specified in the United Nation's 2015 Sendai…”