Carolyn Kousky - Understanding Disaster Insurance: New Tools for a More Resilient Future

Saying that I research insurance can be a conversation stopper. Most people react with a barely suppressed yawn. Many consider insurance boring, or confusing, or both. Then there are those with an active dislike for insurance, offering stories of a companys misleading policies or failure to pay in a time of need. These reactions are understandable, as insurance policies in the United States, and the profitability model underlying them, can be off-putting and opaque. We purchase insurance grudgingly, hoping we wont need it, or not at all, when immediate needs leave no room for future preparation.

I see emerging a different world of insurance, though. I see innovations that are meaningfully speeding disaster recovery and making financial resilience available to lower-income families that need it the most. I see insurance-based mechanisms that are helping prevent disasters, helping reduce their impact, and supporting safer and more sustainable rebuilding in their aftermath. I see support for expanded investments in nature. I see a tool to improve climate adaptation and to support a low-carbon, equitable, and nature positive economy. In Understanding Disaster Insurance: New Tools for a More Resilient Future, I hope toconvince you that not only is insurance a critical foundation for our economy and human well-being, but that it can also be a strong force for social and environmental good.

In the coming decades, risk management will be central to economic and social progress. We are at an inflection point where our failure to take early and strong action on climate change and environmental degradation has locked us into a range of escalating risks. When coupled with our denser and more interconnected global economy, where risks can propagate around the world with shocking rapidity and new technologies are deployed at a breakneck pace, along with societies where political stability remains threatened, particularly in the face of these growing threats, risk management becomes more important than ever. Risk management is most successful when it carefully unites risk education and communication, risk reduction, and risk transfer (as you will see, insurance is just the most common type of risk transfer). While all three sides of that risk management triangle are essential, this book focuses on the risk transfer piece, the piece I believe to be the most misunderstood and underappreciated.

In this book, I will be discussing disaster insurance. Other lines of insurance play equally critical roles in human well-being. The pandemic, for instance, has highlighted for everyone the essential role of health insurance and life insurance. This book, however, is limited to exploring risk transfer for disasters and catastrophes: large-scale events that impact many people simultaneously. These types of events present unique challenges for insurance that require, at times, different solutions than do other risks.

The book begins in also discusses how insurance is perceived and offers some insights on what should guide decision-making around purchasing insurance.

, which addresses the question of whether there are likely to be any climate-induced insurability crises.

delves into how to better link insurance to investments in risk reduction and climate adaptation, both before and after disasters. The section ends with a chapter exploring the role that insurance can play in supporting a more nature positive economy.

Understanding Disaster Insurance is not a textbook, although students interested in risk, climate, and disasters may find it a helpful introduction. I try to avoid jargon and unnecessary details, yet offer explanations for important concepts so that readers can become informed enough to engage with these approaches in their own work. The text provides sufficient grounding in risk transfer for public sector, nonprofit, andphilanthropic groups so that they can effectively evaluate opportunities and partnerships related to insurance and other risk transfer programs and approaches. My focus is primarily, but not exclusively, on the United States. Although lessons and ideas are applicable more broadly, this book focuses on the specific regulatory and policy context of the United States. I also tend to focus on households, although I do discuss, albeit slightly less frequently, disaster insurance for businesses and communities.

Most of all, this book is meant to be a guide to innovative ideas and a road map to put risk transfer to practical use solving societys biggest challenges. Doing so will require embracing, implementing, and scaling new approaches, as well as a continued commitment to innovation and creativity, cross-sector partnerships, and dedicated leaders. The multiple crises now gripping our planet are not small and require broad and deep attention from all sectors. Insurance and risk transfer canand shouldplay a critical role in transforming our economy to be more equitable and sustainable.