S98-19
INSURANCE AND MITIGATION: CAN IT WORK FOR HAZARDS?

Like most panel discussions addressing hazards and insurance issues, this panel was lively. The intent was to examine the relevance of insurance to mitigation, and answer the question: can insurance programs enhance the quality and quantity of mitigation for natural hazards? The panel had a special charge of looking at the issue internationally, at least from the perspective of the United States, Canada, and France.

The panelists and most of those present agreed that insurance programs have been extremely successful in inducing mitigation in areas such as industrial safety to reduce injuries and reduce premiums for workman's compensation. Insurance programs can induce mitigation when the companies are able to reduce premiums for those who mitigate. In the United States, state politics sometimes result in hazards insurance premiums that are artificially low, sometimes too low to cover the claims stemming from a natural hazard event, even if the events are rare. That, of course, limits the ability of insurance companies to reduce premiums as a reward for mitigation by individual policy holders. In France, national law imposes uniform rates for hazards insurance, forcing insurers to look for other ways, such as reduced or increased deductibles, to induce desired mitigation behaviors. In Canada, hazard insurance premiums are determined by the open market, so it is easier for Canadian firms to provide incentives.

Insurance firms can play a direct and an indirect role in mitigation. Direct roles include interaction with policy owners on specific actions that can reduce risk and premiums. Indirect roles include professional training and development for risk managers, mitigation research, and risk communication. It is entirely reasonable to assume that insurance programs can induce increased mitigation of natural hazard risks, but the further extension of insurance industry activities in this area will depend on the extent to which insurance companies will view it as a potentially profitable activity. This means more attention needs to be paid to ensuring appropriate insurance premiums for natural hazard events.

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September 2, 1998