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Insurance against natural catastrophes: balancing actuarial fairness and social solidarity

Author

Listed:
  • Arthur Charpentier

    (Université du Québec à Montréal (UQAM))

  • Laurence Barry

    (Chaire PARI - DataStorm)

  • Molly R. James

    (UFR des Sciences et Techniques)

Abstract

Natural disasters offer a specific case study of the mix of public and private insurance. Indeed, the experience accumulated over the past decades has made it possible to transform poorly-known hazards like flood losses, long considered uninsurable, into risks that can be assessed with some precision. They exemplify, however, the affordability issue associated with risk-based premiums. The French scheme reflects such ideas and offers wide coverage for moderate premiums to all, but is questioned in its principle by climate change: we show that some wealthier areas that were not perceived as ‘at risk’ in the past have now become exposed to submersion risk. This singularly makes some well-off properties the potential main beneficiaries of a scheme that was historically thought to protect the worst-off. Acknowledging that some segmentation may become desirable, we examine several models for flood risk and the disparity in premiums they entail.

Suggested Citation

  • Arthur Charpentier & Laurence Barry & Molly R. James, 2022. "Insurance against natural catastrophes: balancing actuarial fairness and social solidarity," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 47(1), pages 50-78, January.
    • Handle: RePEc:pal:gpprii:v:47:y:2022:i:1:d:10.1057_s41288-021-00233-7
    DOI: 10.1057/s41288-021-00233-7
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    1. Georges Dionne & Denise Desjardins, 2022. "A re‐examination of the US insurance market's capacity to pay catastrophe losses," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 25(4), pages 515-549, December.

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