Co-Managing Natural Catastrophic Risks by the Insurance Industry and Government

Liao, Yanjun (Penny), Zach Whitlock, Brooks Kaiser and Simon Sølvsten
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Liao, Yanjun (Penny): Resources for the Future
Zach Whitlock: Resources for the Future

No 26-06, RFF Working Paper Series from Resources for the Future

Abstract: Escalating climate-related catastrophe losses are placing increasing strain on private insurance markets, raising concerns about the long-term insurability of natural hazards. This paper describes the evolving roles of private and public institutions in sustaining catastrophe risk transfer. We first examine private catastrophe risk transfer mechanisms and discuss how rising loss volatility and modeling uncertainty are constraining private market capacity. We then compare catastrophe insurance arrangements across 13 countries and US states, identifying four institutional regimes that differ in the extent and form of government involvement. Across these regimes, we analyze the economic logic underlying public sector involvement, with particular emphasis on its roles in expanding risk pooling and enabling cross-subsidization to sustain insurance markets. We also discuss complementary policies that improve data availability and promote risk mitigation. Our analysis provides a framework for understanding how public-private arrangements can sustain insurance availability and enhance financial resilience under worsening climate risk.

Date: 2026-03-27
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Persistent link: https://EconPapers.repec.org/RePEc:rff:dpaper:dp-26-06

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