Economics of Insurance Against Natural Disaster Risks

2021 ◽  
Author(s):  
W. J. Wouter Botzen
Keyword(s):  
Climate Change ◽  
Risk Reduction ◽  
Natural Disaster ◽  
Supply And Demand ◽  
Insurance Coverage ◽  
Management Strategies ◽  
Economic Losses ◽  
Disaster Insurance ◽  
Starting Point ◽  
Risk Management Strategies

Increasing natural disaster losses in the past decades and expectations that this trend will accelerate under climate change motivated the development of a branch of literature on the economics of natural disaster insurance. A starting point for assessing the implications of climate change for insurance and developing risk management strategies is understanding the factors underlying historical loss trends and the way that future risks will develop. Most studies have pointed toward socioeconomic developments as the main cause of historical trends in natural disaster risks. Moreover, evidence reveals that climate change has been a contributing factor, which is expected to grow in importance in the future. Several supply and demand side obstacles may prevent natural disaster insurance from optimally fulfilling its desirable function of offering financial protection at affordable premiums. Climate change is expected to further hamper the insurability of natural disaster risks, unless insurers and governments proactively respond to climate change, for example by linking insurance coverage with risk reduction activities. A branch of literature has developed about how the functioning of insurance should be improved to cope with climate change. This includes industry-level responses, reforms of insurance market structures, such as public–private natural disaster insurance provision, and recommendations for addressing behavioral biases in insurance demand and for stimulating risk reduction. In view of the rising economic losses of natural disasters, this field of study is likely to remain an active one.

The Role of Natural Disaster Insurance in Recovery and Risk Reduction

2019 ◽  
Vol 11 (1) ◽  
pp. 399-418 ◽  
Author(s):  
Carolyn Kousky
Keyword(s):  
Risk Reduction ◽  
Natural Disaster ◽  
Climate Adaptation ◽  
Empirical Studies ◽  
Insurance Coverage ◽  
Hazard Mitigation ◽  
Critical Role ◽  
Empirical Work ◽  
Disaster Insurance

Natural disaster losses have been increasing worldwide. Insurance is thought to play a critical role in improving resilience to these events by both promoting recovery and providing incentives for investments in hazard mitigation. This review first examines the functioning of disaster insurance markets broadly and then turns to reviewing empirical studies on the role of natural disaster insurance in recovery and the impacts of disaster insurance on incentives for ex ante hazard mitigation and land use. Rigorous empirical work on these topics is limited. The work that has been done suggests that insurance coverage does improve recovery outcomes, but impacts on risk reduction may be modest. More studies comparing outcomes across insured and uninsured properties are needed, particularly for better understanding the role of insurance in climate adaptation.

Assessment and Adaptation to Climate Change-Related Flood Risks

2018 ◽  
Author(s):  
Brenden Jongman ◽  
Hessel C. Winsemius ◽  
Stuart A. Fraser ◽  
Sanne Muis ◽  
Philip J. Ward
Keyword(s):  
Climate Change ◽  
Land Use ◽  
Risk Management ◽  
Population Growth ◽  
Sea Level ◽  
Flood Risk ◽  
Management Strategies ◽  
Inundation Depth ◽  
Risk Management Strategies ◽  
Flood Losses

The flooding of rivers and coastlines is the most frequent and damaging of all natural hazards. Between 1980 and 2016, total direct damages exceeded $1.6 trillion, and at least 225,000 people lost their lives. Recent events causing major economic losses include the 2011 river flooding in Thailand ($40 billion) and the 2013 coastal floods in the United States caused by Hurricane Sandy (over $50 billion). Flooding also triggers great humanitarian challenges. The 2015 Malawi floods were the worst in the country’s history and were followed by food shortage across large parts of the country. Flood losses are increasing rapidly in some world regions, driven by economic development in floodplains and increases in the frequency of extreme precipitation events and global sea level due to climate change. The largest increase in flood losses is seen in low-income countries, where population growth is rapid and many cities are expanding quickly. At the same time, evidence shows that adaptation to flood risk is already happening, and a large proportion of losses can be contained successfully by effective risk management strategies. Such risk management strategies may include floodplain zoning, construction and maintenance of flood defenses, reforestation of land draining into rivers, and use of early warning systems. To reduce risk effectively, it is important to know the location and impact of potential floods under current and future social and environmental conditions. In a risk assessment, models can be used to map the flow of water over land after an intense rainfall event or storm surge (the hazard). Modeled for many different potential events, this provides estimates of potential inundation depth in flood-prone areas. Such maps can be constructed for various scenarios of climate change based on specific changes in rainfall, temperature, and sea level. To assess the impact of the modeled hazard (e.g., cost of damage or lives lost), the potential exposure (including buildings, population, and infrastructure) must be mapped using land-use and population density data and construction information. Population growth and urban expansion can be simulated by increasing the density or extent of the urban area in the model. The effects of floods on people and different types of buildings and infrastructure are determined using a vulnerability function. This indicates the damage expected to occur to a structure or group of people as a function of flood intensity (e.g., inundation depth and flow velocity). Potential adaptation measures such as land-use change or new flood defenses can be included in the model in order to understand how effective they may be in reducing flood risk. This way, risk assessments can demonstrate the possible approaches available to policymakers to build a less risky future.

scholarly journals Coping with poor water supply in peri-urban Bandung, Indonesia: towards a framework for understanding risks and aversion behaviours

2017 ◽  
Vol 29 (1) ◽  
pp. 69-88 ◽  
Author(s):  
Anindrya Nastiti ◽  
Barti Setiani Muntalif ◽  
Dwina Roosmini ◽  
Arief Sudradjat ◽  
S V Meijerink ◽  
...  
Keyword(s):  
Water Supply ◽  
Risk Perceptions ◽  
Management Strategies ◽  
Water Source ◽  
Economic Losses ◽  
Socioeconomic Characteristics ◽  
Perceptions Of Risk ◽  
Shared Experiences ◽  
Actual Risk ◽  
Risk Management Strategies

This paper explores the daily risks of households with respect to dimensions of inadequate water access and supply (quality, quantity, continuity and affordability). We describe how perceptions of risk are shaped and how households seek to reduce possible health impacts and potential economic losses through aversion behaviours. To this end, households’ activities relating to water storage, treatment and usage, together with water source preference, were analysed using a qualitative approach. We developed a framework that describes actual risk, risk perceptions and aversion behaviours. Risk perceptions and the adoption of aversion behaviours of varying frequency and intensity are based on a complex interaction between personal and shared experiences that relate to water supply dimensions, socioeconomic characteristics, and social networking. Moreover, we discuss household risk management strategies and provide some recommendations aimed at improving future approaches to the study of aversion behaviours.

Climate change and Australian livestock systems: impacts, research and policy issues

2008 ◽  
Vol 48 (7) ◽  
pp. 780 ◽  
Author(s):  
S. M. Howden ◽  
S. J. Crimp ◽  
C. J. Stokes
Keyword(s):  
Climate Change ◽  
Climate Changes ◽  
Production Systems ◽  
Management Strategies ◽  
Forage Production ◽  
Risk Management Strategies ◽  
Operational Systems ◽  
Assess Climate Change ◽  
The Many ◽  
Adaptation Options

The recent changes in Australia’s climate, the likelihood of further changes over the next decades to centuries, and the likely significant impacts of these changes on the Australian livestock industries, provide increasing urgency to explore adaptation options more effectively. Climate and atmospheric changes are likely to impact on the quantity and reliability of forage production; forage quality; thermal stress on livestock; water demands for both animal needs and for growing forage; pest, disease and weed challenges; land degradation processes; and various social and economic aspects including trade. Potential adaptation options are available for moderate climate changes, with these often being variations of existing climate risk management strategies. However, to date there are few Australian examples where these adaptations have been assessed systematically on any scale (e.g. enterprise, regional, whole of industry or national). Nor have many studies been undertaken in a way that (i) effectively harness industry knowledge, (ii) undertake climate change analyses in the framework of existing operational systems, or (iii) assess climate change in the context of other socioeconomic or technical changes. It is likely that there are limits to the effectiveness of existing adaptations under more severe climate changes. In such cases more systemic changes in resource allocation need considering, such as targeted diversification of production systems and livelihoods. Dealing with the many barriers to effective adaptation will require ‘mainstreaming’ climate change into policies covering a range of scales, responsibilities and issues. This mainstreaming will facilitate the development of comprehensive, dynamic and long lasting policy solutions. The integrative nature of climate change problems requires science to include integrative elements in the search for solutions: a willingness to apply integrated rather than disciplinary science and a strengthening of the interface with decision-makers.

scholarly journals The Importance of Scientific Research: the Case of Insurance for Climate Change

2017 ◽  
Vol 2 (2) ◽  
Author(s):  
Donatella Porrini
Keyword(s):  
Climate Change ◽  
Management Strategies ◽  
Scientific Research ◽  
Extreme Weather Events ◽  
Potential Contribution ◽  
Insurance Sector ◽  
Natural Catastrophes ◽  
Weather Events ◽  
Risk Management Strategies ◽  
Potential Damage

<p>Climate change is likely to cause extreme weather events in the world with the consequence of an increased number of natural catastrophes. The expected damages pose serious challenges to governments in terms of policy choice and a crucial point is to define the role can be played by insurance sector, particularly as a tool to reduce potential damage, as well as to stimulate mitigation. Scientific research and good knowledge of risk are necessary in guiding policy decisions to manage the risks deriving from climate change. In this direction, the author analyses the fact that risks connected with climate change and the potential contribution of the insurance sector need to be analysed by scientific research in order to plan the correct risk management strategies in the future.</p>

scholarly journals Exploring the resilience movement through an urban planning and water management lens

2021 ◽  
Author(s):  
Mariya Gorlova
Keyword(s):  
Climate Change ◽  
Water Management ◽  
Land Use ◽  
Natural Disaster ◽  
Land Use Planning ◽  
Rockefeller Foundation ◽  
Management Strategies ◽  
Strategy Development ◽  
Model Cities ◽  
Precautionary Measures

Land use planning recognizes the need for incorporating climate change adaptation strategies to address natural disaster reoccurrence. In 2013, the Rockefeller Foundation developed the 100 Resilient Cities (100RC) model to support initiatives related to climate change and resilience. Globally through the model, cities appointed Chief Resilience Officers (CROs) to develop a vision, lead implementation and establish long-term city resilience. Three major cities in Canada (Toronto, Vancouver and Montreal) are now RC100 cities and subsequently introduced the positions of CROs. The purpose of this research paper is to highlight the current state of interventions in Toronto water management strategies to emphasize the role land use planning can have in Resilience Strategy development. Recommendations will be made based on literature review, policies and best practices scan, as well as stakeholders’ interview analysis. Safety and wellbeing of citizenry are at the forefront of the urban agenda, requiring utmost attention to climate change and precautionary measures against natural disaster. Key words: land use planning, urban water management, Canada, resilient cities

Disaster Risk, Moral Hazard, and Public Policy

2019 ◽  
Author(s):  
Thomas Husted ◽  
David Nickerson
Keyword(s):  
Public Policy ◽  
Moral Hazard ◽  
Private Insurance ◽  
Insurance Coverage ◽  
Disaster Risk ◽  
Economic Incentives ◽  
Economic Losses ◽  
Public Expenditures ◽  
Disaster Insurance ◽  
Disaster Aid

Natural disasters pose a significant and rapidly growing burden to society, causing over a million deaths and worldwide economic losses in the trillions of dollars in the last twenty years. Concerned over the extent to which their populations are exposed to disaster risk, policymakers in disaster-prone countries strive to increase the penetration of disaster insurance from its relatively low current level and wish to arrest the increasing share of public liability for private losses arising from rising public expenditures on disaster recovery. Although evidence regarding disaster risk and insurance suggests that individuals respond to their economic incentives when deciding on the degree to which to expose their property and other to risk from a recurrent disaster, potential inefficiencies in private insurance markets can distort these individual incentives and result in underinsurance and excessive exposure. Current research into whether such apparent market inefficiencies are primarily attributed to the behavior of private market participants or to the adverse incentives arising from current programs of disaster aid, regulation and other public policies is of fundamental importance to attaining these policy objectives. This article critically assesses the current state of mainstream economic and political research into disasters, public policy, and household behavior toward disaster risk. Findings of the most important and influential empirical and theoretical studies over the last 30 years are described, as well as limits on the robustness and interpretation of these findings arising from the characteristics of economic data on disasters and potential bias in measuring the determinants of disaster insurance coverage. Also discussed are both theoretical and empirical evidence that moral hazard on the part of households, insurance firms, and elected officials results in misallocations of private coverage; and it is demonstrated that, exactly contrary to the objectives of public policy, current programs of disaster aid in the presence of moral hazard create incentives for households to minimize, rather than maximize, market coverage of their exposure to disaster risk. The conclusion presents and proves a proposition, original to this article, that any compensatory public aid program is necessarily a source of economic inefficiency and, conditional on net losses, decreases economic welfare.

scholarly journals Adaptive Capacities for Diversified Flood Risk Management Strategies: Learning from Pilot Projects

Water ◽  
2019 ◽  
Vol 11 (12) ◽  
pp. 2643
Author(s):  
Flavia Simona Cosoveanu ◽  
Jean-Marie Buijs ◽  
Marloes Bakker ◽  
Teun Terpstra
Keyword(s):  
Climate Change ◽  
Risk Management ◽  
Flood Risk ◽  
Management Strategies ◽  
Analytical Framework ◽  
Flood Risk Management ◽  
Pilot Projects ◽  
Ongoing Research ◽  
Climate Change Effects ◽  
Risk Management Strategies

Diversification of flood risk management strategies (FRMS) in response to climate change relies on the adaptive capacities of institutions. Although adaptive capacities enable flexibility and adjustment, more empirical research is needed to better grasp the role of adaptive capacities to accommodate expected climate change effects. This paper presents an analytical framework based on the Adaptive Capacity Wheel (ACW) and Triple-loop Learning. The framework is applied to evaluate the adaptive capacities that were missing, employed, and developed throughout the ‘Alblasserwaard-Vijfheerenlanden’ (The Netherlands) and the ‘Wesermarsch’ (Germany) pilot projects. Evaluations were performed using questionnaires, interviews, and focus groups. From the 22 capacities of ACW, three capacities were identified important for diversifying the current FRMS; the capacity to develop a greater variety of solutions, continuous access to information about diversified FRMS, and collaborative leadership. Hardly any capacities related to ‘learning’ and ‘governance’ were mentioned by the stakeholders. From a further reflection on the data, we inferred that the pilot projects performed single-loop learning (incremental learning: ‘are we doing what we do right?’), rather than double-loop learning (reframing: ‘are we doing the right things?’). As the development of the framework is part of ongoing research, some directions for improvement are highlighted.

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