What role for ‘long-term’ insurance in adaptation? An analysis of the prospects for and pricing of multi-year insurance contracts
AbstractMulti-year insurance has been proposed as a tool to incentivise policyholders to invest in propertylevel adaptation. In a world of rising natural catastrophe risks, such autonomous adaptations could have significant benefits for the property-owner, the insurer and society. We review the arguments forand against multi-year contracts and provide new analyses on their price implications. We conclude that even under conditions of known and stationary risk, initial capital requirements could be around 50% higher for a 10-year contract than an annual contract and the annual premium around 5.5% higher; in the real world of changing and uncertain risks, premiums would be even higher. We also conclude that multi-year contracts have several additional disadvantages that are likely to limit their demand and availability in the general retail insurance market. For adaptation, a preliminary analysis of existing evidence suggests that other tools, such as risk-based premiums and loans for adaptation tied to the property, have greater potential
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Grantham Research Institute on Climate Change and the Environment in its series Grantham Research Institute on Climate Change and the Environment Working Papers with number 62.
Date of creation: Sep 2011
Date of revision:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kunreuther, Howard, 1996. "Mitigating Disaster Losses through Insurance," Journal of Risk and Uncertainty, Springer, vol. 12(2-3), pages 171-87, May.
- Kunreuther, Howard & Meszaros, Jacqueline & Hogarth, Robin M. & Spranca, Mark, 1995. "Ambiguity and underwriter decision processes," Journal of Economic Behavior & Organization, Elsevier, vol. 26(3), pages 337-352, May.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (The GRI Administration).
If references are entirely missing, you can add them using this form.