Linking Risk Reduction and Risk Transfer
In the United States and around the world, we are currently facing the twin challenges of (1) a risk reduction gap and (2) a disaster insurance gap. The former refers to the fact that cost-effective risk mitigation has not been sufficiently implemented for today’s risk, let alone future changes in risk. The latter refers to the fact that very few people at risk have disaster insurance.
There is a natural complementarity between disaster risk reduction and disaster insurance. From a policy perspective, viewing these challenges as integrated can produce useful outcomes. First, when hazard losses are lowered through mitigation, the cost of insuring the residual risk decreases. Second, disaster insurance programs can at times be designed to help overcome financing challenges and/or provide a financial incentive for risk reduction investments. Finally, there is a growing recognition that holistic approaches to risk management, involving both the public and private sectors, can produce tangible gains in resilience.
The Policy Incubator is currently tackling a number of questions: Can insurance effectively incentivize new investments in risk reduction before a disaster? Can it help motivate responses to changing risk profiles? To what extent can insurance help promote risk reduction after a disaster through funding or policy terms aimed at “building back better”? Are some models better at encouraging risk reduction than others? Do new innovations, such as peer-to-peer models, lead to greater mitigation? Can public programs and risk pools provide greater incentives for risk reduction? If so, how?
Reports and Issue Briefs:
Op-Eds and Blog Posts: