Cost Mitigation of Natural Disasters through Insurance
Keywords:
catastrophic insurance, natural disasters India, economic challenges, innovative financing, under-insuranceAbstract
Climate change has an enormous impact on public infrastructure and health. Studies reveal natural disasters instigated by climate change have increased in intensity and frequency and they cause immense economic losses. Financing the rebuilding process after a disaster is a challenge of massive proportion that demands enormous resources on behalf of countries. The rebuilding process is an uphill task even for developed countries that have considerably better planning and finances at their disposal in comparison to low-middle-income countries (LMIC’s) which lack access to extensive funds. For LMIC’s, the limited financial resources for the development of infrastructure are further constrained due to the occurrence of a natural disaster. According to estimates, global economic losses to a whopping amount of 200 billion dollars is incurred every year due to climate change worldwide due to extreme weather. According to projections in the case of India, it experiences an average loss to the amount of 9.8 billion dollars annually on an average due to climatic disasters. Usually no matter how much money is poured for disaster management through public funds its mostly never adequate to cope up with losses in most natural disasters and the brunt of the majority of losses is to borne by the public. It is in such a scenario that insurance, which fundamentally implies risk management for the insured at a premium comes into play for mitigation of cost due to losses. Insurance assumes a significant role in natural disaster prone zones like north-western region in India. It assists in extenuating the financial impact of natural disasters to a large extent. This review paper aims to firstly, to understand the significance and role that insurance plays in financing the rebuilding process for coping up with the challenges brought forth by natural disasters. Secondly, understand and highlight issues faced by the increased occurrence of natural disasters for insurance companies forcing them to innovate new strategies for the sustaining current profitability while also preserving the viability of its future operations for stakeholders.
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