Insurances could become a strategic political and economic tool to face climate change. The extent of potential loss, the adverse social and economic consequences for millions of people and considerable fiscal strain imposed on the government budget by weather disasters indicate that governments can benefit significantly from the use of insurance instrument that would seamlessly not only cover damage but also incentivise risk reduction behaviours.
It’s one of the outcomes of the last CMCC’s research paper published by CIP (Climate Impacts and Policies. An Economic Assessment). Researchers Donatella Porrini (CMCC) and Reimund Schwarze (Helmholtz Center for Environmental Research) are the authors of this study that explores the possible role of insurance systems to address the challenges of climate change.
Looking at the diversity of existing insurance systems in the European countries researchers examined natural hazards insurance in terms of private and public involvement, taking into account the EU climate change policies framework. The scientists analysed the economic efficiency of different insurance models in relation to the informational imperfections (i.e. adverse selection, moral hazard) and market imperfection (i.e. charity hazard and transaction costs). Moreover, the different models are analysed for the way they likely affect incentives to address climate change seeking mechanism to facilitate the mitigation of greenhouse gas emissions, the adaptation to the inevitable impacts of climate change, and the development of climate risk financial management. Conclusive remarks suggest a possible future development of a European insurance system to find an economic efficient response to natural hazards caused by climate change.

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