Disaster Risk Insurance As an Instrument Risk-Based Pricing Vs. Distributive Justice: Potential Trade-Offs

Hanger-Kopp, S., Linnerooth-Bayer, J., & Lorant, A. (2016). Disaster Risk Insurance As an Instrument Risk-Based Pricing Vs. Distributive Justice: Potential Trade-Offs. In: IDRiM 2016 7th International Conference on Integrated Disaster Risk Management Disasters and Development: Towards a Risk Aware Society, October 1-3, 2016, Isfahan, Islamic Republic of Iran.

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Abstract

Recently disaster risk insurance has received increasing attention scrutinizing its capacity to serve other purposes than transferring risk. The main objective pursued by many policy makers, economists and insurers is to create more efficient systems able to foster risk reduction by means of risk-based premiums. At the same time, government involvement is a frequent practice in disaster insurance schemes, in order to make them economically feasible. Public involvement however, requires for an insurance arrangement to not only be economically, but also socially feasible.

It is thus important to explore the implications of different design choices in public-private insurance arrangements both for their efficiency and potential to foster risk reduction and equity (distributive justice). What do these terms mean in the context of disaster insurance? I will present results from a top-down study of 20 national insurance arrangements across the Western world, as well as three European bottom-up case studies. These will help illustrating the potential trade-offs between these two and other objectives. Our findings show, that there are ways to achieve both objectives, although not necessarily by means of risk-based pricing. Questions remain as to the applicability of our results under different economic, cultural and political circumstances.

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