4. Insurance markets

WP4: Insurance markets

Effective risk management includes aspects of risk reduction, risk retention as well as risk transfer. Insurance – as well as other forms of formal and informal risk transfer – plays an important role in allowing for swift reconstruction and reestablishment of livelihoods after a shock, thereby limiting the depth and length of (economic) disruptions for the individual and for societies. It can strengthen risk understandings in general, and provides a pricing signal on risks which ultimately may contribute to better risk management behavior.

Yet, there are also existing questions of moral hazard – insured populations refraining from risk prevention because of expected pay-outs. Also nat-cat insurance – especially in Germany – is voluntary and not common in the flood affected areas in North Rhine-Westphalia and Rhineland Palatine. Gaps in insurance protection, and underinsurance, put large pressure on governments to provide post disaster reconstruction relief, raising questions around fiscal sustainability as well as social fairness. Affordability and accessibility of insurance coverage in areas at risk might become an issue of concern, exacerbated by growing risk levels due to climate change and unsustainable land use decisions. Nat-cat insurance markets are usually government regulated and need to be embedded in a broader perspective of risk governance. Providing insights into such broader questions will be the goal of this work package.

Specific research questions and dialogues include inter alia:

• The interplay between risk information and understanding and insurance markets: Risk analyses provide the basis for effective risk management. They are the determining factor for setting insurance premium levels. The work package will look into the dynamics of flood risk information with focus on insurance providers and clients.
• Comparative perspectives on insurance market governance: Creating effective nat-cat insurance markets as part of a broader risk management approach is a complex undertaking with roles and responsibilities for various stakeholders. The work package will undertake comparative analyses on aspects of insurance market governance in the Netherlands, Belgium and Germany in light of the flooding event. This might among others include discourse analysis to gain insights into the evolution of governance systems before and after the flooding event in July 2021.
• Post-disaster relief, insurance uptake and recovery: a large share of uninsured risks leads to strong popular demand for public relief programs after natural disasters, which disincentivises future insurance uptake and encourages excessive risk-taking. The ability to solve such social dilemma for example though policy reforms is constrained by individuals trust that others will not act opportunistically. The work package will research the underinsurance of risks, implications for recovery processes, and possible reform proposals form a political economy perspective and validate concepts using behavioral economic experiments.

Further topics may be added in the coming months.

Team members

UNU-EHS

• Sönke Kreft
• Simone Sanholz
• Florence Nick
• Dirk Kohler

UNU-MERIT

• Stephan Dietrich
• Stefanie Roost
• Lena Blind
• Shrddha Rajesh