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get events which are ..................... and that could cause extensive damage, such as earthquakes, are not insured by private insurers. from screen.
Catastrophic risk and insurance
Les risques catastrophiques sont de ceux qui exposent le plus de personnes à un péril. Au fur et à mesure des années, les incidences et la sévérité des catastrophes s’accroissent. Celles-ci peuvent avoir de graves implications pour les ménages les plus pauvres qui ne disposent pas des ressources nécessaires pour se protéger des désastres. Elles peuvent aussi suspendre les progrès d’ensemble d’une économie. Par conséquent, aucune économie ne devrait omettre de prendre les dispositions suffisantes afin de lutter contre les pertes financières dues aux catastrophes. L’assurance est l’une des approches pour réduire l’intensité des effets postérieurs aux événements catastrophiques. Elle recèle plein d’avantages dans la mesure où elle procure une assistance financière opportune après les chocs dus à des événements extrêmes ; cela a aussi pour effet de réduire les conséquences à long terme des désastres. L’assurance diminue également la dépendance à l’égard de ressources ex-post et sécurise à l’avance la disponibilité des ressources nécessaires. Cela déplace le fardeau des pertes de l’Etat ou la communauté vers les assureurs. Ceux-ci ont des approches diverses pour mener l’identification, la réduction et le transfert des risques. Au niveau d’un Etat, aucun système d’assurance ne peut suffire à lui seul. Un partenariat public-privé est nécessaire pour disposer de solutions effectives basées sur des assurances visant à couvrir les risques catastrophiques.
Catastrophic risk is one where a large number of people are exposed to the risk of a large loss by reason of the occurrence of a peril. It could be a natural calamity in the form of earthquakes, floods, draughts or even terrorism attack resulting in loss of life, destruction of infrastructure on a large scale. The September 11 attacks (often referred to as 9/11) are the most dreaded example of catastrophic terrorism attack. 9/11 was a series of coordinated suicide planned by ‘Al Queda’ upon the United States on September 11, 2001 where in excluding the 19 hijackers, 2,974 people died in the attacks. World Trade Center collapsed. The attacks left a significant economic impact on the United States and world markets. Catastrophes have occurred many times in history at global level also which affected many economies. Some of the most devastating global catastrophic risks resulting in loss of more than 10 million lives include the Taiping Rebellion (1851-1864), and the famine of the Great Leap Forward in China, the Black Death in Europe, the Spanish flu pandemic, the two World Wars, the Nazi genocides, the famines in British India, Stalinist totalitarianism, and the decimation of the native American population through smallpox and other diseases.
Catatrosphes can have an adverse impact not only on the public finances of an economy but also can impinge on the very subsistence of poor and vulnerable communities. With the passing times, the incidence and severity of catastrophes is increasing. Swiss Re’s sigma study on catastrophes indicated that more than 2, 38,000 people lost their lives due to the natural catastrophes and man-made disasters in 2008 - the fourth largest number of deaths since 1970. Catastrophes in 2008 cost the society $ 225 billion. It includes both insured and uninsured losses to buildings, infrastructure and vehicles. Out of it, $ 50 billion was covered by property insurance, making 2008 the second costliest year ever in terms of insured losses The Sichuan earthquake was the costliest at $ 85 billion. Major catastrophes can put the whole progress of economy at halt. Sock markets plunge, GDP growth comes down, the financial strength of the economy weakens and a lot more. Therefore, no economy should ever dare to ignore making sufficient provisions to combat the financial losses of catastrophe.How countries are affected due to catastrophes ?
Catastrophes can have serious implications on poor households as they do not have sufficient resources to protect themselves from disasters. In the event of a disaster, poor communities often resort to self-insurance and informal means of risk management. If the intensity of the loss is not too severe and probability is high, self financing and informal means of risk management are effective. However, in the case of low probability, high intensity a loss, self financing and informal means of risk financing are ineffective. In the case of severe floods or droughts where the risks are systemic, the ex-post informal means of risk management include selling of assets. As the risks are correlated, therefore, large numbers of households resort to selling their assets at the same time which brings down the value of assets. The same holds true for wages. Poor farm households resort to off-farm means of coping with their losses. Since, the risk is spread over a substantial geography, the excess supply of labour and weakened financial capacity of the businesses depress the wages received. Therefore, systemic risks results in large scale loss in wage, income and work. It leads to growth in indebtedness and vulnerable communities are caught in the poverty trap.Resource allocation dor disaster management
Catastrophe Risk management is an integral Part of Country Risk Management. World Bank Group plays an active role in assisting its client countries with building effective catastrophe risk management systems as natural disasters have a disproportionately adverse impact on the poor.Risk pooling and risk transfer
It is high time that the scope of disaster risk management in India needs to be extended. Risk Pooling and Risk Transfer can prove to be very effective and complementary to disaster relief, rehabilitation and reconstruction. Risk layering can be used to identify the varied intensity of catastrophe risk and the role of each stakeholder in catastrophe risk management.
Appropriate risk financing for different types of risks is shown in Exhibit 1.1.
Nature of Risk and Appropriate Risk Financing
For the first category of the risk, the community can resort to savings and credit. The second layer could be covered by markets - insurance companies. If the impact of the disaster is severe and is beyond the scope of Insurance companies there is a need to look for options outside the domestic country through World Bank assistance and Reinsurance Contracts. The reinsurance could be provided by Reinsurers or Multi-lateral agencies. Munich Re is the world’s largest reinsurance company with over 5,000 customers in 160 countries and has its headquarters in Munich, Germany. It was one of the major insurers of the World Trade Centre in New York City that was destroyed on 11 September, 2001.
Does Insurance Cover Natural Disasters?
If a severe weather event destroys your home or vehicle, are you protected? Learn whether insurance covers natural disasters, or if you need to buy additional coverage.
OTHER INSURANCE TOPICS
Does Insurance Cover Natural Disasters?
Does Insurance Cover Natural Disasters? Do car and home insurances cover floods, fire, and wind damage?
By Lorraine Roberte Updated on May 30, 2022
Reviewed by Anthony Battle
Fact checked by Gina LaGuardia
In This Article
Does Home Insurance Cover Natural Disasters?
Does Car Insurance Cover Natural Disasters?
Choosing Insurance Coverage and Limits
Frequently Asked Questions (FAQs)
STURTI ÂÂ/ GETTY IMAGES
In 2021, the world experienced several severe weather events. In all, these natural disasters caused more than $343 billion in damages globally. Of this damage, only $130 billion (86%) was covered by insurance. That left a whopping $213 billion in damages uncovered.1
If a disaster were to strike tomorrow, would you be covered? To make sure you are financially protected, take time to evaluate your insurance policies, understand what natural disasters are and aren’t covered, and speak to your insurance agent about adding any additional coverage. This way, you can be confident you have coverage in place if you need it.
Some natural disasters are excluded by most standard home insurance policies. These often include floods and earthquakes.
Depending on where you live, you may want to purchase additional types of natural disaster coverage.
Comprehensive car insurance usually covers damage to your vehicle from weather events and other catastrophes.
It’s important to know what insurance coverage you currently have so you can identify any gaps that may leave you vulnerable should a disaster occur.
Insurance Has Its Limits
Standard home insurance policies protect your home from many natural disasters. However, there are a few perils that typically are excluded. If one of those disasters strikes, your insurance company doesn’t have to pay for the damages.
Here’s a quick look at a few common weather events and if they’re usually covered.WEATHER EVENT STANDARD HOME INSURANCE POLICY INCLUSION
Earthquake No Flood No Hail Yes
Hurricane Depends on location
Ice storm Yes
Lightning strike Yes
Wildfire Depends on location
Windstorm Depends on location
Of course, insurance policies vary. Read your policy carefully to see what types of damages are included or excluded.
If you need to purchase a special insurance policy or endorsement to protect against a specific natural disaster, be mindful of the timing. Many insurers won’t allow you to add these when a weather event is predicted to happen soon.
Homes aren’t the only things that can get destroyed in a severe weather event; so can your car. Auto policies with comprehensive coverage typically insure against natural disasters. Collision-only insurance often excludes disaster-related coverage. Without comprehensive coverage, such repairs are generally out of pocket.
Does Home Insurance Cover Natural Disasters?
A standard home insurance policy usually covers many types of catastrophic events. However, if you live in an area prone to excluded perils, speak to your insurance agent about your options for additional protection.
Here’s more information about some common disaster coverages available.
Floods aren't covered by standard home insurance policies, although mobile-home policies may include it. FEMA states that in simple terms, flooding is excess water on land that’s usually dry and that impacts two or more properties or acres of land. For protection from flood-related disasters, purchase a policy from the National Flood Insurance Program (NFIP). Many major insurance providers offer flood coverage.
You can decide if you want to purchase building coverage, contents coverage, or both. Building coverage protects your home and home systems such as plumbing, electrical, and built-in appliances. Content coverage insures your personal belongings.
If you live in a high-risk area and have a mortgage, lenders may require you to take out a flood policy.2 The FEMA flood maps can help you assess your home’s risk.
Projections in the 1990s changed the way many insurance companies handled earthquakes. Back then, it was projected that a large earthquake could send insurers into bankruptcy. Afterward, most standard home insurance stopped including earthquake coverage.3
If you live in an area where earth movement is common, consider purchasing an earthquake policy. Typically, this covers damages caused directly by the earthquake to your home and personal possessions. The cost of cleanup is also often included.
California, Washington, and Missouri are the top three markets for earthquake insurance in the country.4
While wind is a covered peril on most insurance policies, you may need to add it to your policy if you live in a coastal city. Some policies also have a special deductible for wind losses due to hurricanes or other named-storm events such as tropical storms or cyclones. Currently, 19 states and Washington, D.C. have hurricane or named-storm deductibles, many of them in locations prone to these types of disasters. Other states may also allow insurers to have this type of deductible.5
Catastrophe Insurance Definition
Catastrophe insurance protects businesses and residences against natural disasters, such as earthquakes and floods, and against man-made disasters.
INSURANCE HOME INSURANCE
By JULIA KAGAN Updated August 23, 2021
Reviewed by EBONY HOWARD
Fact checked by MICHAEL LOGAN
What Is Catastrophe Insurance?
Catastrophe insurance protects businesses and residences against natural disasters such as earthquakes, floods, and hurricanes, and against human-made disasters such as a riot or terrorist attack. These low-probability, high-cost events are generally excluded from standard homeowners insurance policies.
Though they both deal with protecting a home, catastrophe and homeowners insurance are technically two different types of coverage.
Catastrophe insurance protects businesses and residences against natural disasters—such as earthquakes and floods—and against man-made disasters.
Special catastrophe insurance is available for specific natural disasters, such as flood insurance, storm insurance for hurricanes and tornadoes, earthquake insurance, and volcano insurance.
Flood insurance is unique in that it is available through the federal government.
How Catastrophe Insurance Works
Homeowners insurance may contain certain types of coverages, but loss or damage resulting from certain types of events are typically excluded. As a rule of thumb, damage and destruction due to earth movement (such as landslides, mudslides, earthquakes, and sinkholes) or floods (due to storms, typhoons, tsunamis, or hurricanes) usually are not covered by homeowners insurance.
Many homeowners policies cover only named perils, which can vary policy to policy and by the insurance company. Even an "all perils" policy may exclude some events or contain specific policy limits, so you may not be fully insured for a major loss. That's where catastrophe insurance comes in.
Different types of catastrophe insurance are available to cover the damage done by natural disasters and by man-made events. Special catastrophe insurance is available for specific natural disasters, such as flood insurance, storm insurance for hurricanes and tornadoes, earthquake insurance, and volcano insurance.
Catastrophe insurance is different from other types of insurance from a business standpoint, as well. It is difficult to estimate the total potential exposure to, and cost of, an insured loss, especially since a catastrophic event often results in an extremely large number of claims being filed at the same time. This makes it challenging for catastrophe insurance issuers to manage risk effectively. Reinsurance and retrocession are used by issuers to manage catastrophe risk arising from their coverage of catastrophic events.
Estimated global total economic losses from natural and man-made disasters in 2019, according to insurer Swiss Re Institute.
Often, the coverage you should consider buying will mostly depend on the place in which you live. Certain geographical areas are higher risk than others for events such as hurricanes, tornadoes, windstorms, wildfires, or floods. If you live an area that's vulnerable to aquatic mishaps, such as a hurricane zone or flood plain, you may need to carry flood insurance on your residence. Flood insurance is available through the federal government's National Flood Insurance Program (NFIP).
The government runs this program because the risks of flood insurance are typically too high for commercial carriers. Depending on your specific circumstances and the coverages, several scenarios could happen to you with flood insurance:
If you bought flood insurance to cover your home and personal property, you'll receive compensation for both the damage to your residence and to your belongings.
If you bought flood insurance only to cover your home, you wouldn't receive compensation for personal belongings.
NFIP requires 30-day waiting period from the date of purchase before the flood insurance policy takes affect.
Because of this, if you did not purchase your flood insurance well ahead of flood warnings, you might not get any compensation for flooding damages.
Although they sound very similar, do not confuse a catastrophe insurance policy with a catastrophic insurance policy. The latter is a type of health insurance—often referred to as a catastrophic health plan—designed to help pay for major medical emergencies, accidents, or illnesses.
Catastrophe Insurance vs Hazard Insurance
Catastrophe insurance overlaps with and is often referred to as, hazard insurance. However, hazard insurance usually reflects the proverbial "acts of God" events: volcano eruptions, lightning, tornadoes, etc. Hazard insurance may also refer to the section of a general homeowners policy that covers these things.
In contrast, catastrophe insurance refers to more far-reaching coverage, applying to man-made disasters as well as natural ones; it also tends to refer to a standalone policy that is separate from regular homeowners insurance.
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