Insurance instruments for adapting to climate change: a comparative perspective

Insurance can be a useful instrument in addressing climate-related extreme events and an alternative to traditional and inefficient public ex-post compensation payments, even if there are many obstacles in increasing insurance cover against disaster risks: for instance, the underestimation of the real risk of a disaster and the so-called adverse selection. Probably compulsory disaster insurance could solve these problems. So, after having framed these issues, the paper examines two different models of mandatory insurance against natural calamities: the Romanian Catastrophe Insurance Scheme, adopted in 2008, which covers only dwellings and the French CatNat scheme, that provides a mandatory automatic extension of property insurance policies to include disaster risk coverage. The aim is to highlight the strengths and weaknesses of these schemes and to evaluate possible applications to the Italian context. In this regard, in Italy the possibility of introducing mandatory insurance on natural disasters has been discussed for years, but several attempts have failed. What are the reasons behind these failures? Alongside a lack of awareness of climate change risks, many citizens rely on the intervention of public authorities (that is considered to be a fundamental duty of the State); moreover, many consider disaster insurance as a sort of new tax. The undervaluation of risk, reliance on public authorities and limited insurance culture are also the probable causes of the low level of voluntary insurance coverage against natural disasters. This problem does not seem to be solved through the appreciable tax breaks recently introduced for those who take out insurance against calamitous events; structural interventions would be necessary even if the fear of losing public support restrains the adoption of courageous choices in this field.