Understanding Decision Making in regard to Climate Change

This study investigates decision making in regard to natural hazards. Through a case study on climate change risk, it examines the response of the Australian insurance industry to the increasing frequency and intensity of natural disasters. Data sources for this study include in-depth structured interviews with senior managers in the insurance industry as well as archival data. Two types of decision making strategy are considered, adaptation and mitigation. Adaptation in the context of this study involves increasing resilience of buildings to reduce the damage from natural disasters, but does not involve any action regarding factors causing the climate to change. Mitigation actions target the causes of climate change, and the case study analysis reveals insurers have been reluctant to initiate mitigation actions despite experiencing significant increases in claims costs from natural disasters associated with climate change. Findings indicate that respondents have little understanding about the causes of climate change, and insurers have adapted their business models through more rigorous underwriting practices to maintain profitable operations. Higher claims costs and capital costs from the issuing of bonds have been passed onto policy holders and insurers have limited the availability of cover in regions at high risk of natural disasters. The study maps the process of making decisions concerning the assessment and management of hazards, and extends existing models of this process, making a contribution to the understanding and terminology of risk analysis. It finds intuitive decision making a poor match for decisions concerning hazards, as well as institutional influences that simplify decision making. The study extends understanding of equivocality, stewardship, legitimacy theory and stakeholder theory, showing how these concepts are embedded in everyday insurance practice. A number of practical recommendations are made to assist insurance practitioners better understand natural hazards and give more consideration to engaging in and promoting mitigation actions regarding climate change