Date: December 1, 2011
Topic: Climate Change and Insurance Mechanism: Future Perspectives on Adaptation with a Feasible Catastrophe Insurance Model
Speaker: Hsin-Chun Wang (Associate Professor at NTU College of Law; member of PLES)
At this Forum, Associate Professor Hsin-Chun Wang discussed the challenges of insurance mechanism under climate change and how an ideal insurance policy could be specifically designed. PLES also invited Professor Shih-Chieh Chang of NCCU Department of Risk Management and Insurance to attend the seminar, providing a deeper aspect with Professor Chang’s professional knowledge in mathematics, statistics, and risk management.
Associate Professor Wang’s presentation focused on how insurance mechanisms can contribute to adaptation to climate change. First, he pointed out that possible insurance mechanisms of catastrophic risks include social insurance, tort-based compensation, natural-disaster insurance, compulsory liability insurance, and personal insurance. No matter which kind of insurance strategies, there exists the issue of insurability. We must understand the insurability and uncertainty of climate change risks while designing the insurance model for climate change issues. Associate Professor Wang continued to provide two models: obligatory insurance model and the model based on the recovery of damages, and he further discussed the pros and cons of both models.
Professor Wang suggested that the compulsory first-party insurance may seem to be a more viable and feasible solution. However, he also pointed out that the problems of this model include moral hazard; inefficiency of insurance market; and possible risk discrimination and equity. Finally, Associate Professor Wang concluded that governments are expected to provide compensation and can be deemed as the ultimate insurers for all societal risks.
Professor Shih-Chieh Chang further outlined Taiwan’s insufficiency of insurance knowledge and immaturity of insurance culture. While the knowledge of personal insurance is quite common, we still lack the knowledge of property insurance. Taking the example of fire insurance and earthquake insurance on houses, the rate of insured houses is only 25%. And the same issue will appear in the insurance mechanism of climate change as well, thus, taking us to the next level: whether the insurance mechanism should be compulsory or more flexible. Professor Chang also presented the issue of climate change, while related to the issues of catastrophe risks, economic losses, and unequal insurance and damages. These issues are all involved with the actuarial premium. Lastly, Professor Chang agreed with Associate Professor Wang on the importance governments’ role in risk management.
Slides on Climate Change and Insurance Mechanism (Hsin-Chun Wang)