Abstract: This paper examines the role of insurance in mitigating the adverse macroeconomic effects of climate-related catastrophes. We first develop a stylised theoretical growth model which incorporates a role for natural catastrophes, climate change and insurance. This illustrates how insurance can mitigate the impact of catastrophes and articulates the potential effect of falling insurance coverage as global warming intensifies. The model also provides a basis for our empirical analysis which explores the link between insurance coverage and the macroeconomic impact of catastrophes for a sample of several thousand disaster events across 47 developed and middle income countries between 1996 and 2019. The results confirm that higher insurance coverage is associated with less severe macroeconomic consequences of disasters. With climate-related catastrophes becoming ever more frequent and severe, our findings highlight the importance of developing policies to reduce the climate insurance protection gap.
https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp3184~97866fff16.en.pdf
