Public-private insurance for the management of natural disasters

Natural disasters can compromise the economy, solidity, andsocial well-being of entire nations. To cope with natural risks,some countries have established public-private partnershipswith the insurance industry, with generally satisfactorilyoutcomes. The aim of this thesis is to investigate the roleof these partnerships. Chapter 2 reviews the internationalexperience and investigates the main weaknesses of thepublic-private insurance systems currently in force, that canbe traced back to poor risk understanding and inadequategovernance. Including risk management into developmentplans can help ensuring effectiveness of risk reduction,while a more inclusive approach can achieve a better riskunderstanding. The following three chapters are devoted tothe Italian case study and define a public-private insurancescheme for earthquakes and floods. As a first step, Chapter3 estimates expected losses per individual and municipalitythrough risk-modeling. Chapter 4 defines the insurancemodel, that departs from the existing literature by describinga public-private insurance intended to relieve the financialburden that natural events place on governments, while atthe same time assisting individuals and protecting the insurancebusiness. Though earthquakes generate expected lossesthat are almost six times greater than floods, we found thatthe amount of public funds needed to manage the two perilsis almost the same. Lastly, Chapter 5 tests whether jointlymanaging the two perils can counteract the negative impactof spatial correlation. Some benefit from risk diversificationemerged, though the probability of the government havingto inject further capital is still considerable.