The Insurance of Natural Hazards: Proposals to an Appropriate Risk Partnership Between Insurers, Reinsurers, the Government and the Policyholders

The coverage of natural hazards through the private insurance industry is possible if it is based on a sensible risk partnership. A partnership between the insurance and reinsurance industry, the policyholders and the government for establishing the legal framework or, if necessary, as reinsurer of last resort. Solutions involving compulsory insurance and flat premiums or other interventionist measures are comparatively disadvantageous. They often assume the form of taxes that are levied among the population as a whole but are redistributed among only a minority. They offer no incentive to avoid endangered regions or to take steps to prevent or reduce loss. This leads to a steady increase in loss potential resulting from the subsidizing of poor risks. And this is undesirable at least in the long term since it results, as only too often in the case of subsidies of all kinds, in the faulty allocation of economic resources. In many cases the capacity provided by the insurance industry is sufficient to cover the risk of natural catastrophes.