Catastrophic Risks and First-Party Insurance

Although the insurance industry demonstrates a growing concern about the severe rise in losses from natural disasters, only about one third of all potential victims have in fact purchased first-party catastrophe insurance. Although first-party insurance has several advantages, we find that there is indeed actually no demand for and supply of first-party insurance for natural catastrophes. Therefore, the central question we examine from a behavioral law and economics perspective is why in fact so little use is made of the possibilities of first-party insurance and why first-party insurance can constitute a viable alternative to government compensation. Further, we wonder whether compulsory first-party disaster coverage could be a solution. To conclude, we consider under which circumstances the further introduction of first-party catastrophe insurance should be applauded as a means to encourage potential victims to take control over their compensatory means without losing track of giving them preventive incentives as well