G. Dionne (ed.), Handbook of Insurance

Abstract: Catastrophic risks associated with natural disasters have been increasing in many countries including the United States because more individuals and firms are locating in harm’s way while not taking appropriate protective measures. This paper addresses ways to reduce future losses by first focusing on behavioral biases that lead homeowners and decision-makers not to invest in adequate protection. It then turns to developing proposals for risk management strategies that involve private-public partnerships. These include multi-year insurance contracts with risk-based premiums, insurance vouchers to address affordability concerns for low-income homeowners, tax incentives, mitigation loans coupled with well-enforced building codes and land-use regulations. 2 “Our nation is facing large-scale risks at an accelerating rhythm, and we are more vulnerable to catastrophic losses due to the increasing concentration of population and activities in high-risk coastal regions of the country. The question is not whether catastrophes will occur, but when and how frequently they will strike, and the extent of damage they will cause. Now is the time to develop and implement economically sound policies and strategies for managing the risk and consequences of future disasters