Cost Mitigation of Natural Disasters through Insurance

Ahmed Tauqeer Zahid ., Farooq Ahmad Khan .


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.


catastrophic insurance, natural disasters India, economic challenges, innovative financing, under-insurance

Full Text:



Anderson, Dan R. (1976). All risks rating within a catastrophe insurance system. Journal of Risk and Insurance:629-651.

Apoorva (2014). Kashmir flood relief: Supreme Court asks insurance firms to settle claims quickly. The Mint, Oct 10, 2014.

Asian Insurance Review. (2016). India: Nat CAT events cost insurers US$2 bln in 2 years, 08 January 2016 [cited 13 March 2016]. Available from =eDaily.

Bang, Nupur Pavan; and Pushpendra Johari (2014). Nat Cat Modelling. In IIB Bulletin: Insurance Information Bureau of India.

Benson, Charlotte, and Edward J Clay. (2004). Understanding the economic and financial impacts of natural disasters: World Bank Publications.

Bevere, Lucia, Thomas Seiler, Peter Zimmerli, Hans Feyen, and Kurt Karl. (2013). Natural Catastrophes and Man-made Disasters in 2012: A Year of Extreme Weather Events in the US: National Emergency Training Center.

Born, Patricia, and W Kip Viscusi. (2006). The catastrophic effects of natural disasters on insurance markets. Journal of Risk and Uncertainty no. 33 (1-2):55-72.

Bouwer, Laurens M. (2011). Have Disaster Losses Increased Due to Anthropogenic Climate Change? Bulletin of the American Meteorological Society no. 92 (1):39-46. doi: 10.1175/2010BAMS3092.1.

Browne, Mark J, and Robert E Hoyt. (2000). The demand for flood insurance: empirical evidence. Journal of risk and uncertainty no. 20 (3):291-306.

Carter, Michael R, Peter D Little, Tewodaj Mogues, and Workneh Negatu. (2007). Poverty traps and natural disasters in Ethiopia and Honduras." World development no. 35 (5):835-856.

Cropper, Maureen, and Sebnem Sahin. (2009). Valuing mortality and morbidity in the context of disaster risks. World Bank Policy Research Working Paper Series, Vol.

Edwards, Colin ; and Charles Davis. (2012). Global Underinsurance Report. London: Cebr.

Field, Christopher B. (2012). Managing the risks of extreme events and disasters to advance climate change adaptation: special report of the intergovernmental panel on climate change: Cambridge University Press.

Gitay, H, S Bettencourt, D Kull, R Reid, K McCall, A Simpson, and M Fay. (2013). Building resilience: Integrating climate and disaster risk into development. World Bank. Retrieved from http://wwwwds. world bank. org/external/default/WDSContentServer/WDSP/IB/2013/11/14/000456286_2013 no. 1114153130.

Grislain-Letrémy, Céline. (2015). Natural disasters: exposure and underinsurance. Available at SSRN 2461822.

Gurenko, Eugene N. (2015). Climate change and insurance: disaster risk financing in developing countries: Routledge.

Hallegatte, Stéphane, and Michael Ghil. (2008). Natural disasters impacting a macroeconomic model with endogenous dynamics. Ecological Economics no. 68 (1):582-592.

Hazell, Peter. (2001). Potential role for insurance in managing catastrophic risk in developing countries. International Food Policy Research Institute, draft.

Hibbard, KA, P Crutzen, EF Lambin, D Liverman, NJ Mantua, JR McNeill, B Messerli, and W Steffen. (2007). The great acceleration. Sustainability or collapse:341-378.

IBEF. Insurance. India Brand Equity Foundation, August (2015). [cited 10 March 2016] Available from

Kahn, Matthew E. (2005). The death toll from natural disasters: the role of income, geography, and institutions. Review of economics and statistics no. 87 (2):271-284.

Kaplow, Louis. (1991). Incentives and government relief for risk. Journal of risk and Uncertainty no. 4 (2):167-175.

Kellenberg, Derek, and A Mushfiq Mobarak. (2011). The economics of natural disasters. Annu. Rev. Resour. Econ. no. 3 (1):297-312.

Kliesen, Kevin L. (1994). The Economics of Natura Disasters.

Kunreuther, Howard. (1984). Causes of underinsurance against natural disasters. Geneva Papers on Risk and Insurance:206-220.

Kunreuther, Howard. (1996). Mitigating disaster losses through insurance. Journal of risk and Uncertainty no. 12 (2-3):171-187.

Kunreuther, Howard. (2006). Disaster mitigation and insurance: Learning from Katrina.The Annals of the American Academy of Political and Social Science no. 604 (1):208-227.

Kunreuther, Howard, and Mark Pauly (2004). Neglecting disaster: why don't people insure against large losses? Journal of Risk and Uncertainty no. 28 (1):5-21.

Kunreuther, Howard, and Mark Pauly. (2006). Rules rather than discretion: Lessons from Hurricane Katrina. Journal of Risk and Uncertainty no. 33 (1-2):101-116.

Linnerooth-Bayer, Joanne, and Reinhard Mechler. (2006). Insurance for assisting adaptation to climate change in developing countries: a proposed strategy. Climate policy no. 6 (6):621-636.

Luo, Tianyi, Andrew Maddocks, Charles Iceland, P Ward, and H Winsemius. (2015). World's 15 countries with the most people exposed to river floods. World Resources Institute.

Mechler, Reinhard, Joanne Linnerooth-Bayer, and David Peppiatt. (2006). Microinsurance for Natural Disaster Risks in Developing Countries. ProVention Consortium.

Meyer, V., N. Becker, V. Markantonis, R. Schwarze, J. C. J. M. van den Bergh, L. M. Bouwer, P. Bubeck, P. Ciavola, E. Genovese, C. Green, S. Hallegatte, H. Kreibich, Q. Lequeux, I. Logar, E. Papyrakis, C. Pfurtscheller, J. Poussin, V. Przyluski, A. H. Thieken, and C. Viavattene (2013). Review article: Assessing the costs of natural hazards – state of the art and knowledge gaps. Nat. Hazards Earth Syst. Sci. no. 13 (5):1351-1373. doi: 10.5194/nhess-13-1351-2013.

Mills, Evan (2004). Insurance as an adaptation strategy for extreme weather events in developing countries and economies in transition. Lawrence Berkeley National Laboratory.

MunichRe (2015). NAT CATS 2014: What's going on with the weather?

Nair, Sreeja S. , Gupta. Anil K., and Klaus Röder. (2013). Database and Statistics for disaster risk management. New Delhi: National Institute of Disaster Mangement and Deutsche Gesellschaft für Internationale Zusammenarbeit.

NDMA. (2016). Vulnerability Profile. National Disaster Management Authority, Government of India [cited 1 March 2016]. Available from vulnerability-profile.html.

Padmavathi, Vankayalapati (2016). Managing disaster risk exposure in India an opportunity for better risk management and growth. Chartered Insurance Institute, September 2012 [cited 10 March 2016]. Available from

Parvaiz, Athar. (2015). Kashmir flood sparks wave of property insurance sales. Thomson Reuters Foundation, Jul 13, 2015.

Parvez, Imtiyaz A, and Avadh Ram (1997). Probabilistic assessment of earthquake hazards in the north-east Indian peninsula and Hindukush regions. pure and applied geophysics no. 149 (4):731-746.

Peduzzi, Pascal, Andréa De Bono, and Christian Herold (2015). Making Development Sustainable: The Future of Disaster Risk Management, Global Assessment Report on Disaster Risk Reduction.

Petrolia, Daniel R, Craig E Landry, and Keith H Coble. (2013). Risk preferences, risk perceptions, and flood insurance. Land Economics no. 89 (2):227-245.

Priest, George L. (1996). The government, the market, and the problem of catastrophic loss. Journal of risk and Uncertainty no. 12 (2-3):219-237.

Raschky, Paul A, and Hannelore Weck-Hannemann. (2007). Charity hazard—A real hazard to natural disaster insurance? Environmental Hazards no. 7 (4):321-329.

SwissRe (2015a). Stronger advanced markets' performance boosts insurance industry growth in 2014. Available from

SwissRe. (2015b). Underinsurance of property risks: closing the gap. Sigma (5):2015.

Rockström, Johan. (2016). Future Earth. Science no. 351 (6271):319-319. doi:10.1126/science. aaf2138.

Seifert, Isabel, WJW Botzen, Heidi Kreibich, and JCJH Aerts. (2013). Influence of flood risk characteristics on flood insurance demand: a comparison between Germany and the Netherlands.

Singh, Karan, and Amit K Awasthi (2013). Quality, Reliability, Security and Robustness in Heterogeneous Networks: 9th International Conference, Qshine 2013, Greater Noida, India, January 11-12, 2013, Revised Selected Papers. Vol. 115: Springer.

Skees, Jerry R, and Barry J Barnett. (1999). Conceptual and practical considerations for sharing catastrophic/systemic risks. Review of Agricultural Economics no. 21 (2):424-441.

Toya, Hideki, and Mark Skidmore. (2007). Economic development and the impacts of natural disasters. Economics Letters no. 94 (1):20-25.

UNFCCC. (2016). Risk management approaches to address adverse effects of climate change - Insurance. United Nations Framework Convention on Climate Change [cited 10 March 2016]. Available from

Zahid, Ahmed Tauqeer, Farooq Ahmad Khan, and Suhail Ahmad Bhat. (2015). Health Care Cost and Climate Change: Confronting the Strategical Challenges. International Journal of Multidisciplinary Approach & Studies no. 2 (6).


  • There are currently no refbacks.

Editorial Office:

Educational Research Multimedia & Publications,
S.N. 21, Plot No 24, Mirza Ghalib Road Malegaon Nasik,
Maharashtra India - 423203.
+919764558895 (whatsapp),,

Copyrights © 2010-2020 - ERM Publications, India     

This work is licensed under