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Mitigation of Long-Term Risks and the Role of Insurance: A Behavioural Law and Economics Perspective
Published online by Cambridge University Press: 17 April 2023
Abstract
In a world of rising long-term risks and their ensuing syndromes, the mitigation and financing of long-term risks are therefore arguably some of the most critical issues facing society. However, long-term thinking involving future generations draws limited attention in current political and social systems. Private insurance has received increased attention due to its expert role in risk management and its risk transfer mechanisms, and it has played an important role in dealing with some types of long-term risk, such as floods and earthquakes. Increasingly, insurance also contributes to disaster mitigation through regulating the conduct of policyholders by creating incentives for policyholders to counter short-termism and invest in reduction measures regarding long-term risks. In addition, it has been shown that supply-side problems and behavioural anomalies make it difficult to insure against long-term risks. Innovative long-term insurance solutions and a combination of public and private partnerships are proposed to overcome these restrictions.
- Type
- Articles
- Information
- European Journal of Risk Regulation , Volume 14 , Special Issue 4: Special Issue on Long-Term Risks and Future Generations , December 2023 , pp. 779 - 792
- Copyright
- © The Author(s), 2023. Published by Cambridge University Press
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61 See infra, Section IV.3.
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100 Kunreuther et al, supra, note 36, pp 228–32.
101 ibid.
102 H Kunreuther, R Meyer and E Michel-Kerjan, “Overcoming Decision Biases to Reduce Losses from Natural Catastrophes” in E Shafir (ed.), The Behavioral Foundations of Public Policy (Hoboken, NJ, Princeton University Press 2013) pp 398–413.
103 Botzen et al, supra, note 69.
104 Faure and Heldt, supra, note 8, p 225.
105 Examples include but are not limited to Japan (Japan Earthquake Reinsurance Co.), the UK (Flood Re; insurers can cede the riskiest properties to the Flood Re pool at a discounted price) and the USA (the Terrorism Risk Insurance Program and the Florida Hurricane Catastrophe Fund, an example of state-level reinsurance).
106 Thank you to Bas Heerma van Voss for useful feedback on disentangling conceptually the different types of mitigation and compensation.