All‐Hazards Homeowners Insurance: Challenges and Opportunities

• DOI: http://doi.org/10.1111/rmir.12091
• Date: 01 March 2018
• Published date: 01 March 2018
• Author: Howard Kunreuther

Risk Management and Insurance Review

C

Risk Management and Insurance Review, 2018, Vol.21, No. 1, 141-155

DOI: 10.1111/rmir.12091

PERSPECTIVE

ALL-HAZARDS HOMEOWNERS INSURANCE:CHALLENGES

AND OPPORTUNITIES

Howard Kunreuther

ABSTRACT

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 house-

holds come from public funding, not insurance premium subsidies—this article

proposes a strategy for developing an all-hazards homeowners insurance pol-

icy 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

This article proposes a strategy for developing an all-hazards homeowners policy in the

United States that should be attractive to both private insurers and property owners.

A number of countries have insurance policies that cover all hazards, notably Belgium,

Bermuda, France, New Zealand, Spain, and the United Kingdom. Coverage is often

required by the federal government, but in most of these countries, premiums are not

risk based and there are no incentives provided to encourage individuals to adopt

Howard Kunreuther is the James G. Dinan Professor of Decision Sciences and Public Policy,

and Co-Director, Risk Management and Decision Processes Center, Wharton School, Univer-

sity of Pennsylvania; e-mail: kunreuth@wharton.upenn.edu. This article was prepared for the

“Improving Disaster Financing: Evaluating Policy Interventions in Disaster Insurance Markets”

workshop held at Resources for the Future on November 29–30, 2016. I thank the sponsors of

this project: the American Academy of Actuaries, the American Risk and Insurance Association,

Risk Management Solutions, the Society of Actuaries, and XL Catlin. This research was par-

tially supported by the Center for Risk and Economic Analysis of TerrorismEvents (CREATE) at

the University of Southern California, the Critical Infrastructure Resilience Institute (CIRI) at the

University of Illinois (U.S. Department of Homeland Security’s Centers of Excellence), Resources

for the Future and the Wharton Risk Center’s Managing and Financing Extreme Events project.

Carol Heller provided excellent editorial assistance. We thank Wouter Botzen, Brad Kading,

Austin Perez, and Heather Pierce and participants at the RFF-Wharton Risk Center Conference

for their helpful comments on an earlier draft of the article. Portions of this article are taken from

Kunreuther (2015).

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