Challenges of utilizing insurance as part of the disaster risk mitigation toolkit

Posted on September 13, 2017  /  0 Comments

We have been thinking about insurance in the context of disasters ever since the 2004 Indian Ocean tsunami. Recently, we discussed insurance as part of the work we did for ESCAP on resilient ICT infrastructure. There, we came up against the problem of concentrated damage and difficulties of spreading risks discussed in relation to flood insurance in the Economist:

Another obstacle is that flooding is very heavily concentrated and owners of high-risk properties are far more likely to seek insurance, making it difficult to spread risks. But other countries show how private insurance markets can play a bigger role. In Britain private insurers include flood coverage as part of standard policies, so risks are distributed across a wider pool of policyholders. But the government intervenes heavily in reinsurance through a body called Flood Re. This is meant to keep insurance affordable even for high-risk areas through mandatory cross-subsidies, financed by a levy on all insurers.

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