CLIMATE-CHANGE AND INSURANCE - A CRITICAL-APPRAISAL

Several issues relating to insurance and the damage costs of climate c hange are discussed. It is argued that the option of insuring climate change is severely limited because the associated damages are hardly q uantifiable and little diversifiable; in addition, binding contracts a re a problem on long time scales and in an international context. Hedg ing, consumption smoothing over time, precautionary investments and li ability are not to be presented under the heading of insurance, not on ly because this unnecessarily and confusingly expands the traditional definition of insurance, but also because this could create a false se nse of security. The impact of climate change on the profitability of the commercial insurance sector is not likely to be severe, as the ins urance companies are capable of shifting changed risks to the insured, provided that they are properly and timely informed on the consequenc es of climate change. (C) 1998 Elsevier Science Ltd. All rights reserv ed.