Insurance against natural catastrophes: balancing actuarial fairness and social solidarity

Natural disasters offer a specific case study of the mix of public and private insurance. Indeed, the experience accumulated over the past decades has made it possible to transform poorly-known hazards like flood losses, long considered uninsurable, into risks that can be assessed with some precisio...

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Bibliographic Details
Published in:Geneva papers on risk and insurance. Issues and practice 2022, Vol.47 (1), p.50-78
Main Authors: Charpentier, Arthur, Barry, Laurence, James, Molly R.
Format: Article
Language:English
Subjects:
Catastrophes
Climate change
Disaster insurance
Economics and Finance
Finance
Flat rates
Insurance
Insurance coverage
Property damage
Risk Management
Social solidarity
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Summary:Natural disasters offer a specific case study of the mix of public and private insurance. Indeed, the experience accumulated over the past decades has made it possible to transform poorly-known hazards like flood losses, long considered uninsurable, into risks that can be assessed with some precision. They exemplify, however, the affordability issue associated with risk-based premiums. The French scheme reflects such ideas and offers wide coverage for moderate premiums to all, but is questioned in its principle by climate change: we show that some wealthier areas that were not perceived as ‘at risk’ in the past have now become exposed to submersion risk. This singularly makes some well-off properties the potential main beneficiaries of a scheme that was historically thought to protect the worst-off. Acknowledging that some segmentation may become desirable, we examine several models for flood risk and the disparity in premiums they entail.
ISSN:1018-5895
1468-0440
DOI:10.1057/s41288-021-00233-7