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Climate Change and Risk Management: Challenges for Insurance, Adaptation, and Loss Estimation

Author

Listed:
  • Kousky, Carolyn

    (Resources for the Future)

  • Cooke, Roger

    (Resources for the Future)

Abstract

Adapting to climate change will not only require responding to the physical effects of global warming, but will also require adapting the way we conceptualize, measure, and manage risks. Climate change is creating new risks, altering the risks we already face, and also, importantly, impacting the interdependencies between these risks. In this paper we focus on three particular phenomena of climate related risks that will require a change in our thinking about risk management: global micro-correlations, fat tails, and tail dependence. Consideration of these phenomena will be particularly important for natural disaster insurance, as they call into question traditional methods of securitization and diversification.

Suggested Citation

  • Kousky, Carolyn & Cooke, Roger, 2009. "Climate Change and Risk Management: Challenges for Insurance, Adaptation, and Loss Estimation," RFF Working Paper Series dp-09-03-rev, Resources for the Future.
    • Handle: RePEc:rff:dpaper:dp-09-03-rev
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    File URL: http://www.rff.org/RFF/documents/RFF-DP-09-03-REV.pdf
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    Citations

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    Cited by:

    1. Kousky, Carolyn & Rostapshova, Olga & Toman, Michael & Zeckhauser, Richard, 2009. "Responding to Threats of Climate Change Mega-Catastrophes," RFF Working Paper Series dp-09-45, Resources for the Future.
    2. Garg, Amit & Naswa, Prakriti & Shukla, P.R., 2015. "Energy infrastructure in India: Profile and risks under climate change," Energy Policy, Elsevier, vol. 81(C), pages 226-238.
    3. Jacqueline Boucher & Yves Smeers, 2011. "Energy Security and Long-term Arrangements," Chapters, in: Jean-Michel Glachant & Dominique Finon & Adrien de Hauteclocque (ed.), Competition, Contracts and Electricity Markets, chapter 1, Edward Elgar Publishing.
    4. Eakin, Hallie & Keele, Svenja & Lueck, Vanessa, 2022. "Uncomfortable knowledge: Mechanisms of urban development in adaptation governance," World Development, Elsevier, vol. 159(C).
    5. David Cooley & Christopher Galik & Thomas Holmes & Carolyn Kousky & Roger Cooke, 2012. "Managing dependencies in forest offset projects: toward a more complete evaluation of reversal risk," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 17(1), pages 17-24, January.
    6. Christian L. E. Franzke, 2017. "Impacts of a Changing Climate on Economic Damages and Insurance," Economics of Disasters and Climate Change, Springer, vol. 1(1), pages 95-110, June.
    7. Botzen, W.J.W. & van den Bergh, J.C.J.M., 2012. "Risk attitudes to low-probability climate change risks: WTP for flood insurance," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 151-166.
    8. Kousky, Carolyn & Cooke, Roger M., 2009. "The Unholy Trinity: Fat Tails, Tail Dependence, and Micro-Correlations," RFF Working Paper Series dp-09-36-rev.pdf, Resources for the Future.
    9. Harry Joe & Haijun Li, 2011. "Tail Risk of Multivariate Regular Variation," Methodology and Computing in Applied Probability, Springer, vol. 13(4), pages 671-693, December.
    10. Yonatan Strauch & Truzaar Dordi & Angela Carter, 2020. "Constraining fossil fuels based on 2 °C carbon budgets: the rapid adoption of a transformative concept in politics and finance," Climatic Change, Springer, vol. 160(2), pages 181-201, May.

    More about this item

    Keywords

    tail dependence; micro-correlations; fat tails; damage distributions; climate change;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics

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