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European Journal of Law and Economics

, Volume 38, Issue 1, pp 7–28 | Cite as

Insurance models and European climate change policies: an assessment

  • Donatella PorriniEmail author
  • Reimund Schwarze
Article

Abstract

The paper outlines the role of insurance as an economic policy tool that can be used to address the issue of climate change. The magnitude of potential loss, the adverse social and economic consequences for millions of people and considerable fiscal strain imposed on government budgets by extreme weather events all indicate that governments can benefit significantly from the use of an insurance instrument capable not only of covering damage but also of providing an incentive for risk reduction behaviours. By examining the diverse insurance systems that exist in European countries and grouping them into five stylised models, natural hazards insurance is examined in terms of private and public involvement. The paper analyses the performance of different insurance models in relation to information imperfections (i.e. adverse selection and moral hazard) and market imperfections (i.e. charity hazard and transaction costs). In addition, the different models are examined in terms of the extent to which they incentivise mechanisms that facilitate the mitigation of greenhouse gas emissions, adaptation to the inevitable impacts of climate change and the development of climate risk finance management. Some concluding remarks are offered regarding the possible future development of a European insurance model as a means of developing an economically effective response to natural hazards caused by climate change.

Keywords

Climate change Insurance Environmental policy choice 

JEL Classification

K32 L51 P16 Q28 

Notes

Acknowledgments

We would like to thank the participants of the European Association of Law and Economics (EALE) Annual Conference, Hamburg, 22–25 September 2011 and of the 14th Joint Seminar of the European Association of Law and Economics and the Geneva Association, University of Innsbruck, 24–25 February 2011 for their useful comments.

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Copyright information

© Springer Science+Business Media New York 2012

Authors and Affiliations

  1. 1.Università del SalentoLecceItaly
  2. 2.UFZHelmholtz Center for Environmental ResearchLeipzigGermany

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