Insurance as a Mitigator of Post-Hazard Economic Stress: Coverage and Exclusions

Abstract

Insurance against specific hazards is another way to mitigate their economic impacts and reduce mental stress for the insured. Swiss Reinsurance data in 2015 show that natural disasters globally caused an average of US$180 billion of economic damage annually in the last decade, 70 % of which was uninsured. This is because the costs for insurance, if it is available for a hazard zone, is beyond the economic reach of a majority of the citizens in many less developed and developing countries. Insurance companies are lobbying for the installation of defenses against natural disasters such as floods and adherence to up to date building codes in order to keep increases in premiums to a minimum and profits to a maximum…that is the way of business. Insurance premiums with respect to natural and anthropogenic hazards are based on risk assessment analyses discussed earlier in the text. The cost of insurance where it is available for a given hazard, with or without exclusions or additional endorsements, will vary greatly between locations. Whether people will be willing to insure against a hazard and pay for it depends on several factors. Principal among these is the experience a person has had with hazards, the person’s property location with respect to a hazard zone and the reach of a hazard (e.g., of an earthquake, a flood, a wildfire). Additional among these factors are the codes according to which a structure was built, defense features, early warning systems (EWS), economic condition, and education (knowledge) about a hazard threat. An excellent reference to insurance for natural and anthropogenic disasters and secondary events is posted at http://www.insurance.ca.gov