214 pages
6 x 9
6 photos and illustrations
The frequency and intensity of natural disasters—such as wildfires, hurricanes, floods, and storms—is on the rise, threatening our way of life and our livelihoods. Managing this growing risk will be central to economic and social progress in the coming decades. Insurance, an often confusing and unpopular tool, will be critical to successfully emerging from the effects of these crises. Its traditional role is to protect us from unforeseen and unanticipated risk, but as currently structured, insurance cannot adequately respond to these types of threats. How can we improve insurance to provide consistent and sufficient help following all disasters? How do we use insurance not just to help us recover, but also to help us prevent disasters in the first place? And how can insurance help us achieve broader social and environmental goals?
Understanding Disaster Insurance provides an accessible introduction to the complexities—and exciting possibilities—of risk transfer markets in the U.S. and around the world. Carolyn Kousky, a leading researcher on disaster risk and insurance, explains how traditional insurance markets came to be structured and why they fall short in meeting the needs of a world coping with climate change. She then offers realistic, yet hopeful, examples of new approaches. With examples ranging from individual entrepreneurs to multi-country collaborations, she shows how innovative thinking and creative applications of insurance-based mechanisms can improve recovery outcomes for people and their communities. She also explores the role of insurance in supporting policy goals beyond disaster recovery, such as nature-positive approaches for larger environmental impact. The book holds up the possibility that new risk transfer markets, brought to scale, could help create more equitable and sustainable economies.
Insurance and risk transfer markets can be a powerful tool for adapting to climate change, yet they are frequently misunderstood. Many find insurance confusing or even problematic and ineffective. Understanding Disaster Insurance is a useful guidebook for policymakers, innovators, students, and other decision makers working to secure a resilient future—and anyone affected by wind, fire, rain, or flood.
"In a world consumed by rising risks, greater insurance coverage promises speedier and stronger recovery once disaster strikes. Carolyn Kousky’s engaging analysis offers a policy roadmap for why and how harnessing disaster insurance will reduce growing threats. This story-filled volume is a must-read for anyone looking to understand the role of insurance in preparing for the looming threats posed by climate change."
Alice Hill, David M. Rubenstein Senior Fellow for Energy and the Environment at the Council on Foreign Relations and author, "The Fight for Climate after Covid-19"
"In clear prose reinforced by penetrating logic, Kousky explains why and how insurance works when disasters and mega-disasters strike. She dissects the virtues and shortcomings of existing insurance structures and explains how new arrangements, which call on both public and private capabilities, can be created to temper many of the gravest disasters confronting humanity. A clear and insightful book."
Richard Zeckhauser, Ramsey Professor of Political Economy, Harvard University
Introduction
PART 1: Disasters, their Economic Consequences, and the Role of Insurance
Chapter 1: The Costs of an Increasingly Risky World
When Risks Materialize
Securing Financial Resilience
Chapter 2: What Is Insurance and What Is It Not?
The Role of Insurance in the Economy
What Insurance Is Not
The Disaster Insurance Protection Gap
Chapter 3: Insurance Fundamentals and the Challenge of Disasters
How Insurance Works
The Challenges with Insuring Disasters
Chapter 4: Public Disaster Insurance Programs
Public Sector Disaster Insurance
Public Reinsurance and Backstops
Supportive Programming
Chapter 5: Deciding When to Insure
Understanding Risks
Biased Thinking
The Decision to Insure: Beyond Risk Levels
PART 2: The Structure and Operation of Disaster Risk Transfer Markets
Chapter 6: The Structure of Insurance Markets
State Regulation
Policy Distribution
The Chain of Risk Transfer
Chapter 7: The Cost of Disaster Insurance
Catastrophe Models
Premiums and Incentives for Risk Reduction
Insurance Affordability
Market Cycles and Postdisaster Dynamics
Chapter 8: The Insurance-Linked Securities Market
Catastrophe Bonds
The Use of Cat Bonds by the Public Sector
Are Cat Bonds Always a Good Idea? The Case of Pandemic Bonds
Chapter 9: Will There Be Climate-Induced Insurability Crises?
Stress in Markets
Policy Response
PART 3: Innovation to Unlock the Potential of Disaster Insurance
Chapter 10: Improving Disaster Recovery with New Business Models and Products
Difficulties with Recovery
A New Business Model
Parametric Models to the Rescue
Expanding Those with Coverage through Community Policies
Chapter 11: Inclusive Insurance
Microinsurance
Meso-Level Insurance
Sovereign Insurance Pools
Out of Harm’s Way
Chapter 12: Insurance to Lower Disaster Losses
Insurance to Prevent Disasters
Building Back Better
Chapter 13: Insurance for a Nature Positive World
Reflecting the Protection of Nature in Insurance
Insuring Natural Systems
Nature Positive Risk Transfer Structures, Underwriting, and Investments
Chapter 14: The Future of Risk Transfer
Notes
About the Author
Index
In 2021, the massive Dixie Fire blazed across nearly a million acres in Northern California, torching more than 1,300 homes and other structures. Many people who lost their homes and businesses had no homeowner’s insurance, an increasingly common predicament in California and other fire-prone regions. Areas vulnerable to flooding find themselves with similar challenges, as we recently saw in Kentucky. The recurrence of catastrophic natural disasters is pricing out many at-risk markets from any meaningful coverage. Still, some experts see this dilemma as an opportunity: Insurance can be a powerful tool to shape human behavior and the economy. Some even think that new forms of insurance, built on technological advances in data collection and machine learning, could be one of the most effective ways to protect the planet and make communities more resilient to climate change.
On Tuesday, September 27, at 9 a.m. Pacific/12 p.m. Eastern, join Annual Reviews, Knowable Magazine and Future Tense for a conversation that will change the way you think about insurance. And, if you can't join us live, please register for access to the on-demand playback delivered to your inbox.
Attendees will learn why disaster insurance is more important than ever for individuals and communities, the risks that climate change poses to disaster insurance as it currently exists, and how new, reinvented forms of insurance could be a positive force for climate resilience and adaptation, helping us to not only recover from natural disasters, but prevent them.
Moderator:
--Emily Underwood, Knowable Magazine
Speakers:
--Alice Hill, Council on Foreign Relations
--Carolyn Kousky, Environmental Defense Fund: Carolyn Kousky studies disaster insurance markets, disaster finance, climate risk management and policy approaches for increasing resilience. She recently became the associate vice president for economics and policy at the Environmental Defense Fund and previously directed the Wharton Risk Management and Decision Processes Center at the University of Pennsylvania. She is also the author of Understanding Disaster Insurance: New Tools for a More Resilient Future.
This event is part of an ongoing series of live events and science journalism from Knowable Magazine and Annual Reviews, a nonprofit publisher dedicated to synthesizing and integrating knowledge for the progress of science and the benefit of society.
The frequency and intensity of natural disasters—such as hurricanes, floods, and storms—are on the rise, threatening our way of life and our livelihoods. Insurance, an often confusing and unpopular tool, is critical to recovery from these crises. Yet, as it becomes ever more essential, insurance markets are under stress, many are uninsured, and insurance often seems divorced from efforts to improve the resilience and sustainability of our communities. How can we improve insurance to provide consistent and sufficient help following all disasters? How do we use insurance not just to help us recover, but also to help us prevent disasters in the first place? And how can insurance help us achieve broader social and environmental goals?
Associate Vice President for Economics and Policy at the Environmental Defense Fund and author of Understanding Disaster Insurance, Carolyn Kousky, will present on why traditional insurance markets fall short in meeting the needs of a world coping with climate change and how new insurance and risk transfer markets can help create thriving and resilient coastal communities and ecosystems.
Carolyn Kousky, Associate Vice President for Economics and Policy at the Environnmental Defense Fund, and Author of Understanding Disaster Insurance: New Tools for a More Resilient Future will provide an accessible introduction to the complexities -- and exciting possibilities-- of risk transfer markets in the U.S. and around the world. Ms. Kousky will highlight innovative ideas that put risk transfer to practical use solving society's biggest challenges.
Find out more about how insurance can go beyond being a critical foundation for the economy and human well-being but can also be a strong force for social and environmental good!
How can I contact the organizer with any questions?
Email Sarah Hart at: shart@insurancelibrary.org
Hosted by The Insurance Library.
Read Chapter 2: What Is Insurance, and What Is It Not? below or download it here.
In an op-ed published in collaboration with the Urban Resilience Project, Carolyn Kousky (author of Understanding Disaster Insurance) writes that by expanding access to flood insurance, we can protect more Americans — especially the most vulnerable — and improve their financial resilience in the face of escalating climate-related disasters.
Kousky writes:
In the era of climate change, record-breaking is the new normal. Ian came just two weeks after Hurricane Fiona hit Puerto Rico, subjecting residents to yet another damaging storm. Hurricanes are now hitting the U.S. with increasing frequency and intensity. Troublingly, recoveries are long, hard, and inequitable; policy reform is needed in the face of our escalating risks.
Read the full article published in The Hill HERE.