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Environmental insurance and resilience in the age of natural disasters

Author

Listed:
  • Borghesi, Simone
  • Colivicchi, Ilaria
  • Iannucci, Gianluca
  • Tampieri, Alessandro

Abstract

The emergence of natural disasters induces a trade-off in the environmental insurance market. While firms need more coverage against large potential losses, the higher damage caused by accidents increases the cost of insurance. As a result, firms may choose to switch to resilient production, which reduces the severity of environmental damage and exempts the firm from paying an emissions tax. We study this problem in a duopoly industry where two risk-averse firms choose their type (resilient or non resilient) based on their production strategy, and their demand for insurance against financial losses caused by environmental accidents. Our results highlight a non-trivial interaction between insurance demand and technology choice: a resilient firm demands lower insurance coverage when the cost of implementing the resilient technology is relatively low. The emergence of natural disasters ultimately favours the adoption of resilient production methods.

Suggested Citation

  • Borghesi, Simone & Colivicchi, Ilaria & Iannucci, Gianluca & Tampieri, Alessandro, 2026. "Environmental insurance and resilience in the age of natural disasters," Ecological Economics, Elsevier, vol. 239(C).
    • Handle: RePEc:eee:ecolec:v:239:y:2026:i:c:s0921800925002605
    DOI: 10.1016/j.ecolecon.2025.108777
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    Keywords

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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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