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Friday, February 12, 2010

CRS Issue Statement on Disaster Risk Financing

Rawle O. King, Coordinator
Analyst in Financial Economics and Risk Assessment

Insurance plays a key role in the U.S. economy in covering, among other things, the financial losses caused by natural disasters. It also provides incentives for disaster mitigation investments, which helps to reduce the vulnerability of households and businesses to natural hazards. 

Reliance on the decades old practice of reallocating resources throughout the economy after a major natural disaster to compensate disaster victims has become problematic, particularly in light of current fiscal deficits and the increasing frequency and severity of natural disasters. Importantly, the magnitude of damages caused by the 2004, 2005, and 2008 hurricane seasons, and predictions of more frequent storm activity in the Atlantic Basin over the next 15 to 20 years, have restricted homeowners' insurance, reduced availability, and raised affordability issues in disaster-prone areas. Insurance market analysts now question whether the economy's market for catastrophe insurance is sufficient to meet the burdens of a future mega-catastrophe.

Date of Report: January 22, 2010
Number of Pages: 3
Order Number: IS40291
Price: $7.95

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