RFF on the Issues

RFF on the Issues: Enhancing Resilience to Natural Disasters through Insurance

Jan 12, 2017 | Peter Nelson

Extreme storms and associated flood risks have prompted evacuations in northern California this week. In Sacramento County, emergency services officials expected water “to spill over the [Cosumnes River] levee…flooding low-lying roads and buildings with up to 1 foot of water.” On the Sacramento River, spill gates not used since 2005 were opened in order to mitigate overflow risks. What options do communities have to promote resilience to such natural disasters?

According to RFF’s Carolyn Kousky and Leonard A. Shabman, “Financial resilience to disasters can be seen as consisting of two dimensions. The first is the amount of damage sustained and the second is speed of recovery. Insurance can improve both dimensions of financial resilience.” They explain that insurance pays out more quickly than government aid and can lessen the financial impacts of a disaster on those insured. However, they note that “No matter the specifics of the insurance policy, to provide resiliency benefits, more people must be insured against disasters. Increasing coverage will require new and perhaps radical reforms in insurance offerings.” Kousky and Shabman discuss several policy designs to enhance resilience: structuring premiums based on risk, rewarding a wide array of risk reduction measures, and accelerating payouts by employing a parametric insurance system, which pays out based on a “triggering event.”

Learn more about the new technologies and policy tools available to minimize the impact of natural disasters from this recent RFF seminar: Disasters, Resilience, and the "Cure" for Catastrophe.

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The views expressed in RFF blog posts are those of the authors and should not be attributed to Resources for the Future.