Risk Management and Insurance Review

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  • An Overview of the California Earthquake Authority
  • A Successful (Yet Somewhat Untested) Case of Disaster Financing: Terrorism Insurance Under TRIA, 2002–2020

    The Terrorism Risk Insurance Act (TRIA) established a public–private partnership between the U.S. federal government, private insurers, and all commercial enterprises operating on U.S. soil. Renewed and modified in January 2015 until December 2020, the TRIA program requires insurers to offer terrorism insurance to their commercial policyholders while providing insurers with free up‐front financial protection up to $100 billion against terrorist attacks in the United States. With the federal government providing a financial safety net, the private insurance sector can offer coverage against an uncertain risk that would otherwise be largely considered uninsurable, thus making terrorism insurance widely available and affordable. TRIA is a successful case of public–private disaster risk financing that has received bipartisan political support. Yet it remains untested for large losses and it is unclear how the market and policymakers will react should another large‐scale insured loss occur. TRIA also raises concerns about the indemnification of individual victims of a terrorist attack (in addition to workers’ compensation).

  • Risk Management Roles of the Public and Private Sector

    Insurance is an essential component of household and community resilience. It protects insureds financially against disaster losses, can encourage investments in cost‐effective mitigation measures through premium reductions, and facilitates the rebuilding of property and long‐term recovery. Private insurers face challenges in providing full protection against disasters. This has led governments around the world to create a variety of public insurance entities, often designed as public‐private partnerships. At a November 2016 workshop, “Improving Disaster Financing: Evaluating Policy Interventions in Disaster Insurance Markets,” participants evaluated disaster insurance programs for flood, earthquake, and terrorism losses. This article synthesizes six papers and findings from the workshop and suggests ways to improve public‐private partnerships for disaster financing in three interrelated areas: (1) risk communication, (2) risk reduction, and (3) risk transfer. It concludes with a proposal for a comprehensive insurance program that could harness the benefits of both the public and private sectors.

  • Financing Flood Losses: A Discussion of the National Flood Insurance Program

    The National Flood Insurance Program (NFIP), housed in the Federal Emergency Management Agency, has been providing flood insurance to households and businesses for almost 50 years. To inform the policy discussion leading up to reauthorization, this article analyzes five aspects of the NFIP: (1) risk modeling and risk communication, (2) the roles of the public and private sector, (3) take‐up rates, (4) incentives for risk reduction, and (5) rate setting and the financing of catastrophic flood events. Suggestions for reform are discussed.

  • Issue Information
  • Fit for Purpose and Fit for the Future? An Evaluation of the UK's New Flood Reinsurance Pool

    Flood Re is widely hailed as an innovative approach to disaster risk insurance. This article offers a mixed‐methods evaluation of the new pool, asking whether it is “fit for purpose” and “fit for the future.” The investigation considers the roles of the public and private sectors, risk modeling and risk communication, technical underwriting, distributional aspects, and the behavioral implications of Flood Re, particularly with regards to risk reduction and prevention. The article concludes that the new pool is a transitional reinsurance arrangement that supports the private insurance market and secures affordability of flood insurance in the United Kingdom through premium subsidies. However, this approach is likely to come under pressure in the face of rising flood risk as it fails to incentivize flood risk management and risk reduction efforts.

  • Evaluating the Public Financing for Florida's Wind Risk

    To increase residential property insurance options for wind‐related disaster events, the State of Florida created the Citizens Property Insurance Corporation (Citizens) and the Florida Hurricane Catastrophe Fund. These entities play a major role in financing disaster losses for Florida. In this policy article, the authors assert that the State of Florida has emphasized the political objective of insurance affordability rather than managing and controlling risk for the benefit of the citizens of the state. The burden for financing catastrophic hurricane losses has been transferred to the public as most property and casualty insurance policies in Florida are assessable. Florida plays an inherent leadership role in the disaster risk arena, given its high exposure as well as its deep insurance penetration. The authors assert that while Florida has taken a leadership role in disaster risk control, the state's disaster risk financing strategy has failed to employ a long‐term focus that recognizes the interconnectedness of all parts of the system. The opportunity for the state going forward is to change its public policy focus to one that emphasizes availability over affordability. Florida's private markets could operate more competitively, and thus not unnecessarily place Florida's citizens and their economy at risk.

  • All‐Hazards Homeowners Insurance: Challenges and Opportunities

    In the United States, standard homeowners insurance policies cover damages resulting from fire, wind, and hail, but exclude damages caused by floods and earthquakes. This is not the practice worldwide: several countries include all perils in homeowners insurance. Building on two fundamental insurance principles—that premiums reflect risk and that support for low‐income households come from public funding, not insurance premium subsidies—this article proposes a strategy for developing an all‐hazards homeowners insurance policy in the United States that should be attractive to both private insurers and property owners. It outlines critical supporting roles for the public sector and proposes modifications to the National Flood Insurance Program that could provide a foundation for all‐hazards insurance.

  • Introduction
  • Issue Information

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