The unfortunate regressivity of public natural disaster insurance: Quantifying distributional implications of EQC building cover for New Zealand

<p>This thesis examines the question “What have been the distributional implications of the setup of Earthquake Commission (EQC) building cover for New Zealand homeowners?” In New Zealand, the vast majority of property owners pay identical premiums for the benefit of the first $100,000 tranche of natural disaster cover per dwelling. The research provides a detailed quantification of the degree of regressivity of the scheme created by these flat premiums. Using EQC claims and property datasets relating to the Canterbury Earthquake Series, I test the hypothesis that wealthier homeowners are receiving more benefit. Wealth is identified by property value, income and a range of socio-economic variables collected from the most recent New Zealand Census before the earthquake series. In explaining EQC total dwelling payout by property value and by these socio-economic variables, the research shows there is a distributional implication to EQC’s building cover. This thesis includes a proposed modification to the premium structure of the scheme, whereby regressivity could be avoided. The research concludes with a survey of other public natural disaster insurance schemes worldwide, and identifies those likely to face similar regressivity issues.</p>

The unfortunate regressivity of public natural disaster insurance: Quantifying distributional implications of EQC building cover for New Zealand

<p>This thesis examines the question “What have been the distributional implications of the setup of Earthquake Commission (EQC) building cover for New Zealand homeowners?” In New Zealand, the vast majority of property owners pay identical premiums for the benefit of the first $100,000 tranche of natural disaster cover per dwelling. The research provides a detailed quantification of the degree of regressivity of the scheme created by these flat premiums. Using EQC claims and property datasets relating to the Canterbury Earthquake Series, I test the hypothesis that wealthier homeowners are receiving more benefit. Wealth is identified by property value, income and a range of socio-economic variables collected from the most recent New Zealand Census before the earthquake series. In explaining EQC total dwelling payout by property value and by these socio-economic variables, the research shows there is a distributional implication to EQC’s building cover. This thesis includes a proposed modification to the premium structure of the scheme, whereby regressivity could be avoided. The research concludes with a survey of other public natural disaster insurance schemes worldwide, and identifies those likely to face similar regressivity issues.</p>

Can Trust Motivate Farmers to Purchase Natural Disaster Insurance? Evidence from Earthquake-Stricken Areas of Sichuan, China

Natural disasters cause great losses of property and life in many areas of China. However, rural residents do not always insure themselves against these losses. Measuring the correlation between trust and farmers’ behavior related to the purchasing of natural disaster insurance is of great significance to the implementation of natural disaster insurance pilot programs and insurance systems in China. This article analyzes data from a survey of 327 households in four districts and counties of Sichuan Province, China, that were affected by the Wenchuan and Lushan earthquakes. According to the relevant theories of trust, trust was divided into three dimensions: authority trust, collective trust, and relationship trust. Then a technology acceptance model was built, and PLS-SEM was used to comprehensively analyze the correlation between different dimensions of trust and farmers’ insurance purchase behavior. The results show that (1) only relationship trust was directly and significantly positively correlated with insurance purchasing behavior. Although there was no direct significant correlation between authoritative trust or collective trust and buying behavior, relationship trust was found to indirectly affect buying behavior. (2) Younger farmers and those with higher incomes are more likely to buy disaster insurance if they live in a disaster-threat zone, have experienced disasters, and are risk averse. We then discuss the correlations between farmers’ trust and natural disaster insurance purchasing in areas threatened by earthquake disasters. This provides a policy inspiration for the promotion of disaster insurance and the construction of insurance systems in China.

Building a Secure Fence and a Well-Functioning Ambulance Reforming New Zealand's Natural Disaster Insurance Scheme

This article proposes reform to New Zealand's natural disaster insurance scheme in anticipation of The New Zealand Treasury's (Treasury) 2021 review of the Earthquake Commission Act 1993. The Canterbury Earthquake Sequence of 2010–2011 revealed many shortcomings in New Zealand's dual-insurance model, outlined in the March 2020 Public Inquiry into the Earthquake Commission. Recent changes in the private insurance market have aggravated these problems, notably, increasing premiums and a move to sum-insured policies. This article explores the lesser known background to the unique EQC system and examines the fundamental reasons for this public system. It aims to establish the most effective natural disaster insurance scheme for New Zealand, holding that retaining the dual-model approach is preferable. However, fresh reforms are necessary. Five reforms are proposed: ensuring the scheme's universality; increasing the EQC cap; implementing differentiated pricing; incorporating incentives for mitigation; including a purpose statement within the Act. Implementing these reforms will best ensure the scheme meets the objective of allowing homeowners to build their secure fence at the top of the cliff, while still ensuring there is a well-functioning ambulance at the bottom.

Economics of Insurance Against Natural Disaster Risks

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.

A Case Study on Disaster Insurance in Kenya

This study aims to provide a comprehensive outlook on the active disaster insurance scene in the East African country, Kenya. It begins with a geographic and economic analysis of the country followed by its historical challenges with natural disasters, namely droughts. The study is both qualitative and quantitative in nature and mostly deals with secondary sources of data. Establishing the current status of the country, the discussion brings into light the three insurance programs that have gained prominence there in the last decade: Kenyan Livestock Insurance Program (KLIP), Area Yield Index Insurance (AYII), and Kilimo Salama or Safe Agriculture. These programs use state of the art remote sensing technology to determine the availability of pasture, crop yields, etc. through standardized vegetation indices. Once the indices reach a predetermined minimum threshold, they trigger the payout mechanisms of the respective programs, economically uplifting the vulnerable communities involved and avoiding potential disaster. The programs are partially subsidized by the government which allows ease of adoption for local communities and helps stabilize the economy by keeping the agriculture and livestock sectors in balance. The study also acknowledges the limitations faced by the programs in order to provide a more realistic depiction and aims to encourage the piloting of similar programs in other developing nations like Bangladesh. Res. Agric., Livest. Fish.8(1): 57-64, April 2021

Importance of Insurance Mechanisms in Natural Disasters' Risk Mitigation: A case study in Indiav

Introduction: This study aims to understand the dynamics of insurance as a risk management tool for natural disasters in India. It further explores different strategies and programs for disaster insurance adopted by the Indian government and highlights these initiatives' gaps. Methods: The authors conducted both offline and online desk reviews to understand the dynamics of insurance mechanisms and government strategies. They conducted a narrative review of existing literature, including peer-reviewed articles, thematic books, and government and non-governmental reports from diverse sources. Results: The review clearly shows that despite the various types of natural disasters the country faces, the coverage of disaster insurance in India remains low. It outlines the importance of insurance as a risk management tool, especially for the most vulnerable sections of society living in rural parts. The review further highlights the benefits of different government schemes and strategies while at the same time highlighting the gaps in these schemes. Conclusion: The review calls for an urgent and sustained effort to increase the number of individuals insured against natural disasters in the country by addressing the policy shortcomings and engaging with the communities and the private sector to understand their respective needs. The review also underlines the importance of creating awareness regarding disaster insurance among the wider population. Furthermore, it calls for a comprehensive disaster management plan with insurance as one of its pillars.

Stakeholder Power-Interest Analysis of disaster insurance for public infrastructure in Semarang City

The use of disaster insurance for public infrastructure is still uncommon in Indonesia, including in Semarang. The success of the adoption of disaster insurance for public infrastructure is inevitably dependent on the acceptance of stakeholders. The aim of this study is to analyse the power and interest of stakeholders towards the use of disaster insurance for public infrastructure in Semarang. Data was collected via interviews and focussed group discussions with stakeholders of Semarang government officials, asset managers, users, etc. The power-interest grid of stakeholders divides the stakeholders based on their levels of power and interests, resulting in four categories, i.e. players, subjects, crowds, and context setters. This research identified the players are the Mayor, Regional Disaster Management Authority, and Regional Financial and Asset Management Authority (5.5%); the subjects category includes The Public Works Department of Human Settlements and Highways, Public Works Department, Trade Department, majority Public Health Center (40.7%); the crowds are Education Department and majority public schools (53.7%); and no context setters (0%). This study found that low trust in the insurer is a major factor causing a lack of interest in the use of insurance. The results of this study are valuable to understand the stakeholder map of Semarang city based on power and interest aspects, and serve as a basis for developing disaster insurance adoption strategies for public infrastructure.