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IS COMPULSORY CATASTROPHIC RISK INSURANCE THE ONLY OPTION?
Soldić Aleksić, Jasna
Chroneos Krasavac, Biljana
The increasing frequency and economic impact of natural disasters are intensifying the debate about the development of insurance as a tool for risk financing and management. The success and sustainability of insurance schemes for natural disaster losses rely on various factors, many of which extend beyond insurance itself. Catastrophe risk insurance provides compensation after a disaster to mitigate its consequences and works alongside other recovery strategies, including government-provided compensation. Low insurance coverage rates increase pressure on governments to fund disaster recovery. However, if governments offer full compensation after disasters, citizens have less incentive to buy insurance, a situation known as charity hazard, which further decreases insurance demand. Disaster risk management encompasses both recovery and risk reduction strategies, which are interconnected. Insurance companies consider prevention and mitigation when assessing risks and potential losses, impacting the insurability, accessibility, and affordability of disaster insurance. While insurance focuses on risk pricing and transfer, moral hazard must be considered to avoid economic inefficiencies and market failures.359 Moral hazard can occur at the government level, where effective private insurance might reduce the urgency to prevent risks, and at the individual level, where insurance might create a false sense of security. This issue is particularly evident in compulsory schemes with flat premiums supported by governments, which tend to offer uniform catastrophe benefits without discrimination. Consequently, moral hazard is also associated with government compensation after disasters.
This research is supported by the Ministry of Science, Technological Development and Innovation of the Republic of Serbia by the Decision on the transfer of funds to finance the scientific research work of teaching staff at faculties in 2024, No. 451-03-65/2024-03/200097 of 5 February 2024.
engleski
2024
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Creative Commons CC BY-NC-ND 4.0 - Creative Commons Autorstvo - Nekomercijalno - Bez prerada 4.0 International License.
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Keywords: risks, insurance, CBCI