Linking Risk Reduction and Risk Transfer
In the United States and around the world, we are currently facing the twin challenges of (1) a risk reduction gap and (2) a disaster insurance gap. The former refers to the fact that cost-effective risk mitigation has not been sufficiently implemented for today’s risk, let alone future changes in risk. The latter refers to the fact that very few people at risk have disaster insurance.
There is a natural complementarity between disaster risk reduction and disaster insurance. From a policy perspective, viewing these challenges as integrated can produce useful outcomes. First, when hazard losses are lowered through mitigation, the cost of insuring the residual risk decreases. Second, disaster insurance programs can at times be designed to help overcome financing challenges and/or provide a financial incentive for risk reduction investments. Finally, there is a growing recognition that holistic approaches to risk management, involving both the public and private sectors, can produce tangible gains in resilience.
The Policy Incubator is currently tackling a number of questions: Can insurance effectively incentivize new investments in risk reduction before a disaster? Can it help motivate responses to changing risk profiles? To what extent can insurance help promote risk reduction after a disaster through funding or policy terms aimed at “building back better”? Are some models better at encouraging risk reduction than others? Do new innovations, such as peer-to-peer models, lead to greater mitigation? Can public programs and risk pools provide greater incentives for risk reduction? If so, how?
Financing Third Party Wildfire Damages: Options for California’s Electric Utilities
A project culminated in a report examining potential financing options for third-party wildfire damages in California, including a discussion of possible funding sources and mechanisms, and their distributional implications.
Reports and Issue Briefs:
Community-Based Catastrophe Insurance: A Model for Closing the Disaster Protection Gap
Improving the Post-Flood Financial Resilience of Lower-Income Households through Insurance
Flood Risk Management in the United States – Building flood resilience in a changing climate
A Framework for Managing Catastrophic Risks
Assessing the Feasibility of Conducting Social Return on Investment Analyses for “Whole Community” Engagement Activities
Insuring against catastrophic risks: The role of loss experience and emotions
The NFIP’s Increased Cost of Compliance Program
Op-Eds and Blog Posts:
Why We Need Community-Based Catastrophe Insurance
What Are the Most Effective Ways to Insure and Mitigate Wildfire Risks?
Incentivizing Local Governments to Manage Disaster Risk More Effectively
The Role of Natural Disaster Insurance in Recovery and Risk Reduction