Disaster insurance in Europe

Published on April 28, 2022   37 min
My name is Reimund Schwarze from the European University Viadrina, which is a small countryside university in the vicinity of Berlin, and I'm teaching mostly insurance of economics, or what is called the economics of natural hazards, in fact, to students of business and management. I'm doing this for almost 20 years. I'm reporting in my talk about, so to speak, 20 years of experience in flood insurance in Europe from an economic perspective, in fact, I have a specific school of thought which proved to my experience that is very useful in understanding what we see in Europe, but also beyond Europe, on flood insurance- that is called institutional economics. I will explain this in my talk.
Here is what I have to bring to you. I am talking about a very diverse landscape of insurance for floods and storms in Europe. Not to confuse you and keep it as simple as possible, I did what scientists usually do. They reduce the variety of existing schemes to a stylized set of what I call financial risks of natural hazards transfer schemes or abbreviated FRNH transfer systems, which is the most general term I could find to speak about insurance schemes on the one hand and schemes that are backed by taxes for compensating damages, which are also frequent in Europe. I relate these stylized systems in Europe to the existing schemes in Europe. This means, the real variety of our landscape of insurance and compensation schemes to demonstrate that often in reality, these schemes are mixed models of the stylized schemes, and also that there is a systematic tradeoff between a high level of private sharing into risks and little regulation, and on the other hand, a highly regulated market that avoids a low density of insurance. I will come to this in a moment and hopefully with full clarity. The underlying reasons why it's so diverse and why it is so difficult in some sense to arrive at a well-functioning insurance scheme for natural hazards or even a well-functioning compensation scheme, tax-based for natural hazards relates to a set of economic problems which these institutions in Europe adapted to over a long period. Some as far as going back to the medieval period or let's say the early industrializing period, so a few hundred years old, so to speak, others are more topical to the day that means they are evolving, let's say, in the UK only just six years ago in terms of how it is designed today. But, often so this history of insuring natural hazards or compensating for natural hazard damage goes back a couple of centuries in Europe. We see how different countries or even regions adapted to the challenges of the underlying economic problems. As scientists do, we usually start