An assessment of best practices of extreme weather insurance and directions for a more resilient society

TLDR

Extreme weather resilience is framed by resistance, recovery, and adaptive capacity, and insurance mechanisms can shape these pillars before and after events. The study investigates how lessons from current best insurance practices can enhance resilience to extreme weather events. Using an extensive inventory of private property and crop insurance schemes, the authors conduct a multi‑criteria analysis and propose that a nationally representative body coordinate stakeholders. From six European countries, the authors recommend strengthening bundled insurance mandates, public‑private loss‑financing, income vouchers for low‑income households, and linking comprehensive crop‑yield insurance to agricultural subsidies to boost resilience.

Abstract

Extreme weather resilience has been defined as being based on three pillars: resistance (the ability to lower impacts), recovery (the ability to bounce back), and adaptive capacity (the ability to learn and improve). These resilience pillars are important both before and after the occurrence of extreme weather events. Extreme weather insurance can influence these pillars of resilience depending on how particular insurance mechanisms are structured. We explore how the lessons learnt from the current best insurance practices can improve resilience to extreme weather events. We employ an extensive inventory of private property and agricultural crop insurance mechanisms to conduct a multi-criteria analysis of insurance market outcomes. We draw conclusions regarding the patterns in the best practice from six European countries to increase resilience. We suggest that requirements to buy a bundle extreme weather event insurance with general insurance packages are strengthened and supported with structures to financing losses through public-private partnerships. Moreover, support for low income households through income vouchers could be provided. Similarly, for the agricultural sector we propose moving towards comprehensive crop yield insurance linked to general agricultural subsidies. In both cases a nationally representative body can coordinate the various stakeholders into acting in concert.