Our research paper, Insurance against Natural Catastrophes: Balancing Actuarial Fairness and Social Solidarity, with Molly James and Laurence Barry, is now available.
Natural disasters offer a special case for the study of private and public insurance mix. Indeed, the experience accumulated over the past decades has made it possible to transform poorly known hazards, long considered uninsurable, into risks that can be assessed with some precision. They exemplify however the limits of the risk-based premiums method, as it might imply unaffordability for some. The French scheme reflects such ideas and offers a wide coverage for moderate premiums to all, but is shaken by climate change: we show that some wealthier areas, that were not perceived as “at risk” in the past, have become exposed to submersion risk in the future. This singularly makes some well-off properties the potential main beneficiaries of a scheme that was historically thought to protect the worst-off. Acknowledging that some segmentation might become desirable, we examine several models for flood risk and the disparity in premiums they entail.