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What role for �long-term� insurance in adaptation? An analysis of the prospects for and pricing of multi-year insurance contracts

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  • Trevor Maynard
  • Nicola Ranger

Abstract

Multi-year insurance has been proposed as a tool to incentivise policyholders to invest in propertylevel adaptation. In a world of rising natural catastrophe risks, such autonomous adaptations could have significant benefits for the property-owner, the insurer and society. We review the arguments forand against multi-year contracts and provide new analyses on their price implications. We conclude that even under conditions of known and stationary risk, initial capital requirements could be around 50% higher for a 10-year contract than an annual contract and the annual premium around 5.5% higher; in the real world of changing and uncertain risks, premiums would be even higher. We also conclude that multi-year contracts have several additional disadvantages that are likely to limit their demand and availability in the general retail insurance market. For adaptation, a preliminary analysis of existing evidence suggests that other tools, such as risk-based premiums and loans for adaptation tied to the property, have greater potential

Suggested Citation

  • Trevor Maynard & Nicola Ranger, 2011. "What role for �long-term� insurance in adaptation? An analysis of the prospects for and pricing of multi-year insurance contracts," GRI Working Papers 62, Grantham Research Institute on Climate Change and the Environment.
    • Handle: RePEc:lsg:lsgwps:wp62
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    References listed on IDEAS

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