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Review of insurance experiences against climate change impacts like floods in Europe, discussing risk perception, responses of individuals, firms, and governments, roles of insurance, and characteristics of insurance companies in facing natural disasters.
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Can Coastal Europe Insure Against Climate Change:A Review of Experiences on Floods and shoreline Erosion Phoebe Koundouri, Bénédicte Rulleau and MavraStithou Biarritz symposium – 18-21 October 2011
Characteristics of Natural Disaster Risks • CC expected to increase the frequency and severity of flooding in certain regions (IPCC, 2007) • Damages from natural disasters in Europe rapidly increased over the past decades, mainly because of the growth of capital accumulated in flood-prone areas Socio-economic change and climate change “Risk” Biarritz symposium – 18-21 October 2011
Severity of Consequences and Economy Disaster loss Complexity of socio-economic structure and interdependency within and across countries increases Financial &/or technological countermeasures Simple economic structures Middle income level economies Development level Source: Benson and Clay 1998; Lester, 2008; Kellenberg and Mobarak, 2008 Biarritz symposium – 18-21 October 2011
The Risk & Perceived Risk-Triangles (Crichton and Mounsey, 1997; Priest, 2003) Flood frequency and magnitude Extent of flood impact Cost of damage or loss It is the varying perceptions of risk rather than reality of risk that must be managed. For these perceptions to be managed, local knowledge must be acknowledged Biarritz symposium – 18-21 October 2011
Response of Individuals to Natural Disasters • Move out from areas that are at high risk and reallocate in a safer area • Self-protect by building structures less vulnerable to damage • Insure by paying a premium in an insurance company • Factors for under-insurance: • “this will not happen to me” belief • May ignore, knowingly or not, low probability but high consequences events • May be priced out of the insurance market • Highly linked with a recent flood experience Biarritz symposium – 18-21 October 2011
Response of Firms to Natural Disasters • Same here but impacts also relate to human resources, physical resources, business continuity and disaster recovery plan • Vulnerability of small firms Biarritz symposium – 18-21 October 2011
Response of Governments to Natural Disasters • Ex ante public program e.g. well-enforced regulations, mandatory private disaster insurance, building codes in disaster prone areas, incentives through grants and taxes… • Ex post public program e.g. rehabilitation and recovery, reconstruction • Reinsurance, public-private or national-international partnerships, catastrophe bonds • When not possible to find international reinsurance, self-insurance through budgetary allocation • Interrelationship between individual behaviour and structure of government policies Biarritz symposium – 18-21 October 2011
Roles of Insurance • Assist recovery by • Minimizing death, loss and damage • Focusing attention on risk • Placing the burden of that risk on the hazard zone dwellers • Reduce vulnerability and sensibility by affecting “perceived risk” • Promote resilience Biarritz symposium – 18-21 October 2011
Roles of Insurance • But can also help customers affected by weather events such as floods by: • Managing repair process • Bringing in supplies and quality assured repairers • Providing for temporary accommodation while repairs are undertaken • If part of the cover, providing alternative premises for small business to run out of while repairs are i,n progress Biarritz symposium – 18-21 October 2011
Roles of Insurance • And can help the society to adapt and become more resilient (Crichton, 2008): • Assistance with identifying areas at risk • Catastrophe modelling • Economic incentives to discourage construction in flood plain • Collection of data on the costs of flood damage to feed into benefit cost appraisals for flood management schemes • Promotion of resilient reinstatement techniques • Promotion of temporary defence solutions Biarritz symposium – 18-21 October 2011
Types of Flood Insurance • Different countries different home insurance markets where insurance can come bundled with all cover (including flooding), or unbundled (where each component is sold separately) whilst the market may be entirely private, or a state monopoly (Dawson et al. 2011) Biarritz symposium – 18-21 October 2011
Characteristics of Insurance Companies Linked to Natural Disasters • Firms may go bankrupt or suffer significant reduction in their earnings • An select to exit a specific area • Increase in the rates charged by insurers • Adaptation of the observable patters of natural disasters in their operational decisions • Challenge in the light of CC = how to deal with a situation where key-epistemological dimension of CC lies in its “never happened before” dimension Biarritz symposium – 18-21 October 2011
Case Study Experiences • Bordeaux (France), Varna (Bulgaria), Santander (Spain) and Plymouth (UK) • Objective = to derive initial behavioural patterns and investigate the degree of awareness and knowledge on strategies of hedging natural hazards from questionnaire surveys addressed to insurance companies Biarritz symposium – 18-21 October 2011
