Insuring disasters: A survey of the economics of insurance programs for earthquakes and droughts

Abstract

Natural disasters have adverse consequences. A combination of effective mitigation strategies and appropriate coping measures—decreasing both exposure and vulnerability—can reduce their detrimental impact. Further policies can reduce the consequent losses to the economy in the aftermath of catastrophic events. Although constituting no panacea, the evidence suggests that insurance enables improved recovery and increases resilience. Yet, insuring catastrophic risks is complex and not easily achieved. Different types of disaster insurance products are found globally, but to narrow our discussion, we focus on two types of insurance for catastrophic hazards: earthquake insurance and agricultural insurance (for floods and droughts). We survey strategies implemented by governments, the private sector and multilateral/regional organizations that aim to address several impediments to insurance adoption and also describe the available evidence about the performance of such insurance systems in the aftermath of disaster events. We conclude with some thoughts about future research directions.