Can Insurance Achieve its Full Potential for Climate Adaptation?

Insurance is a mechanism to compensate a policyholder who experiences a covered loss. However, insurance also plays a crucial role for incentivizing risk reducing behaviors, lowering the total amount of insured loss, and nudging societies towards greater resilience. Historically, insurance has played a leading role in the discovery, design, and implementation of numerous risk reducing mechanisms. Some of these now fall under the domain of universal government services, and are no longer thought of as contributions from the insurance industry. When we consider climate risks in the present day, we see that insurance can play both roles: it can continue to compensate people for direct losses, but it can also incentivize risk reducing behaviors and help guide societies towards greater climate resilience. We discuss some of the untapped potential for insurance to play this dual role for climate risk. Address for Correspondence: erhardrj@wfu.edu