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At War with the WeatherManaging Large-Scale Risks in a New Era of Catastrophes$
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Howard C. Kunreuther and Erwann O. Michel-Kerjan

Print publication date: 2009

Print ISBN-13: 9780262012829

Published to MIT Press Scholarship Online: August 2013

DOI: 10.7551/mitpress/9780262012829.001.0001

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Proposed Innovations for Dealing with Catastrophic Risks

Proposed Innovations for Dealing with Catastrophic Risks

(p.332) (p.333) 14 Proposed Innovations for Dealing with Catastrophic Risks
At War with the Weather

Howard C. Kunreuther

Erwann O. Michel-Kerjan

The MIT Press

Hurricanes and other natural disasters cause significant damage which, combined with the growing population and assets in high-risk areas, underscores the need for a new approach not only for insuring these catastrophic risks but also for encouraging residents of hazard-prone areas to undertake effective mitigation measures. This chapter describes two principles that should guide the development of new programs aimed at minimizing future catastrophic losses and allocating the costs of disasters efficiently and equitably: insurance premiums must reflect risk and equity and affordability issues must be addressed. It considers two innovations to provide protection to homeowners in hazard-prone areas: tying long-term homeowners’ insurance to a mortgage to stabilize a homeowner’s premiums over time, and a program of insurance vouchers similar to food stamps to enable low-income residents in disaster-prone areas to purchase adequate insurance coverage. It also examines a number of insurance-related proposals involving the private and public sectors, such as a coastal hurricane zone, a national catastrophe fund, auctioned reinsurance contracts, and alternative risk transfer instruments.

Keywords:   catastrophic risks, catastrophic losses, natural disasters, homeowners’ insurance, insurance premiums, insurance vouchers, coastal hurricane zone, national catastrophe fund, auctioned reinsurance contracts, alternative risk transfer instruments

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