When is it beneficial for insurers to engage in climate change adaptation – a cross country comparison

Abstract

Abstract. Natural hazard insurance is suggested an important mechanism to boost climate change adaptation and especially flood risk prevention at individual level and thus decrease losses caused by weather-related disasters. But there is a gap between the theoretical potential described by academic scholars and the actual engagement of insurers. In this paper, this issue is analyzed from the insurers perspective and it is discussed under which conditions it becomes profitable for them to engage in climate change adaptation. It is shown that for many adaptation measures high market penetration over a longer time-period 10 is crucial to make investments profitable. This condition if often only fulfilled in compulsory monopoly insurance systems.Risk-based pricing to incentivize decentralized single-property measures, is seldom done in practice. Bundling of several risks, high market competition and increased transaction costs, but also the required high upfront payment of policy-holders are considered as hinders.