Disaster insurance is more complicated than other types of property/casualty coverage, and traditional forms of risk transfer may not be sufficient on their own to effectively help policyholders bounce back from catastrophes in the long term, Triple-I non-resident scholar Carolyn Kousky said in an interview on the World Economic Forum Book Club Podcast.

‘Globally, a very large share of disaster losses, the economic costs of disasters, are not insured,’ said Kousky, associate vice president for economics and policy at the Environmental Defense Fund. ‘And that’s true even in countries with very well-developed insurance markets because disaster insurance is trickier than other lines of insurance.’

When a natural catastrophe strikes, lots of people are severely affected at the same time and huge numbers of claims must be processed all at once.

‘When everyone suffers a loss at the same time, that actually undermines a lot of the mathematical laws that underpin insurance,’ Kousky said.

The tools insurers use to make sure they have funds available to keep their promises to pay claims -- reinsurance, accessing the capital markets, and maintaining policyholder surplus -- are all expensive, Kousky said, and those costs get passed along to policyholders in the form of higher premiums.