TY - JOUR AU - Kunreuther,Howard TI - Reflections on U.S. Disaster Insurance Policy for the 21st Century JF - National Bureau of Economic Research Working Paper Series VL - No. 12449 PY - 2006 Y2 - August 2006 UR - http://www.nber.org/papers/w12449 L1 - http://www.nber.org/papers/w12449.pdf N1 - Author contact info: Howard Kunreuther Operations and Information Management The Wharton School University of Pennsylvania 3730 Walnut Street, 500 JMHH Philadelphia, PA 19104-6366 Tel: 215/898-4589 Fax: 215/573-2130 E-Mail: kunreuther@wharton.upenn.edu AB - The devastation caused by hurricanes during the 2004 and 2005 seasons has been unprecedented and is forcing the insurance industry to reevaluate the role that it can play in dealing with future natural disasters in the United States. As shown in Table 1 the four hurricanes that hit Florida in the fall of 2004 -- Charley, Frances, Ivan and Jeanne---and Hurricanes Katrina and Rita in 2005 comprised half of the top 12 disasters with respect to insured losses between 1970 and 2005. On a related note, 18 of the 20 most costly disasters occurred between 1990 and 2005 and 10 occurred in the 21st Century. This context is totally different than the scale of economic loss the country has suffered from natural disasters and other extreme events in the 20th century. The first section of the paper addresses the first question by outlining two principles on which a disaster insurance program should be based. Section 3 then focuses on the second question by analyzing the insurability of a risk and examining the challenges facing the private sector in providing coverage against natural disasters. Section 4 turns to the third question and delineates the opportunities and challenges of a comprehensive disaster insurance program. Section 5 poses a set of open issues that are currently being addressed by a research project on disaster insurance undertaken by the Wharton Risk Center in conjunction with the Insurance Information Institute and Georgia State University. The concluding section summarizes the key issues associated with providing disaster insurance in the 21st century. ER -