Regulation by catastrophe insurance: A comparative study

Under the influence of climate-related extremes, the world is exposed to more and more catastrophe risks. Increasingly it is held that the government alone may not be able to adequately prevent disaster risks; a combination of public and private regulation is therefore warranted. Regulation via insurance may help to realize the goal of disaster risk reduction and to mitigate the corresponding losses. In this article we identify five regulatory tools - risk-based pricing, contract design, loss prevention services, claim management, and refusal to insure-that can be used by catastrophe insurers with the aim of disaster risk reduction. Subsequently, we explore how these tools are used in practice by insurers in five countries: United Kingdom, United States, France, Japan, and Turkey. In doing so, we find that regulation through catastrophe insurance could have a positive effect on disaster risk reduction. However, the possibilities to regulate by insurance are in many countries de facto limited as a result of state intervention. Finally, we discuss the possibility and feasibility of regulation by catastrophe insurance in China, where it is not yet utilized.