The Role of Insurance in Integrated Disaster & Climate Risk Management: Evidence and Lessons Learned

Produced by: 
United Nations Department of Economic and Social Affairs (UN/DESA)
Available from: 
October 2017
Paper author(s): 
Felicity Le Quesne, Jennifer Tollmann, Matthias Range, Kehinde Balogun, Michael Zissener, Daniela Bohl, Maxime Souvignet, Sandra Schuster, Sabrina Zwick, Jennifer Phillips, Branko Wehnert and Soenke Kref
Topic: 
Environmental Economics
Year: 
2017

Insurance has an important role to play in disaster and climate risk management. This role is well-recognised in terms of response and recovery, where the rapid and predictable pay-out and resulting effect of smoothing of the fiscal impacts of shocks can be highly valuable. More recently, there has been increased emphasis on the question of whether, and how, insurance can contribute to the management of residual risk, risk preparedness and risk prevention? However, insurance is no panacea. Its contribution to risk reduction and resilience depends upon the quality of the insurance tool and whether it has been designed to respond efficiently to the needs of the policyholder(s) or final beneficiaries. It is not a cost-effective approach for managing all types of risk. If designed poorly or targeted inappropriately, insurance may not contribute meaningfully to risk reduction or greater resilience in all cases. Indeed, in some cases poorly-thought-through insurance schemes may result in increasing vulnerability and/or exposure. Therefore, it is essential that insurance is incorporated within an integrated approach to disaster and climate risk management, where its role in relation to each element of risk management is determined through risk assessment and identification of risk layers. Furthermore, strategies to manage risk such as insurance should be combined with efforts to reduce the drivers of risk; this is particularly important for building resilience among the poor.This paper reviews the empirical evidence relating to when and how insurance can contribute to disaster and climate risk management. Aspects explored include the contribution of insurance to relating to, or even creating the macro-conditions for, resilience to disasters in terms of public finance, economic growth and good governance; the contribution of insurance to risk prevention, preparedness, response and recovery; and the factors that influence the provision of insurance by companies and governments, and uptake of insurance by governments and households. Findings and conclusions from the empirical review are provided, and links are drawn with the key concepts of risk layering and Integrated Climate Risk Management (ICRM).

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