In the recent times, the complex relationship between human activities and the environment has become a major public concern, raising issues of legal, political and economic relevance.The adverse impact of industrial activities on natural resources and biodiversity, as well as the need for sustainable development, stimulated a debate on appropriate policies and techniques aimed at improving the current level of environmental protection and preservation. Conversely, a growing concern has developed over the effects of such extreme natural events as hurricanes, typhoons, floods and earthquakes which pose a serious threat to human life and property, being able to disrupt local communities and to affect the economic stability and growth of entire nations...

After a brief overview of the traditional functioning of the insurance and reinsurance mechanisms, this chapter introduces the general issue of insurability of environment-related risks. It describes the different types of attitudes towards risks and provides a synthesis of the criteria of insurability, which could be summed up under the following headings: assessibility, randomness, mutuality and economic feasibility. Against this backdrop, it is argued that two major factors influence in practice the provision of insurance policies for a particular risk: generalized uncertainty, which largely depends on the legal framework, and informational asymmetries, which may lead to adverse selection and moral hazard problems. As underlined by the author, the assessment of these two factors is of paramount importance in order to establish appropriate insurance mechanisms to cover environment risks....

This chapter focuses on the management of risks related to environmental pollution. Insurability of such risks is tightly connected with the underlying legal and regulatory framework. The author analyses different legal approaches to environmental risks and liability, sketches out the experiences of various OECD countries in this field, and describes recent EU developments. He also examines the factual and legal uncertainty stemming out of the complex and potentially long-tail consequences of environmental pollution. The chapter then provides an overview of the new products and techniques designed by the insurance industry to respond to induced insurability problems, and underlines the various potential roles to be played by insurers in the management of environmental pollution risks. Finally, the author raises the issue of the slow development of the insurance market for environmental pollution risks and appraises different solutions to overcome this problem, among which a compulsory insurance coverage or the development of alternative financial guarantees...

This final chapter is devoted to the analysis of the role of insurance in the management of natural catastrophe risk. The author underlines the role of insurers as well as the limits of private insurance solutions for the coverage of such extreme risks, due to the magnitude of their economic consequences and the difficulties faced in pooling risks. He also gives an overview of complementary or alternative risk management options already tested in different institutional contexts and analyses the crucial role played by governments in partnerships with the private sector. Besides he describes the main features of several governmental disaster schemes and other institutional arrangements that have been designed in order to supplement or replace traditional reinsurance and provide regulatory incentives for the development of private coverage. The overview of alternative risk management techniques also includes an analysis of the development of new financial instruments (e.g. catastrophe bonds or weather derivatives) aimed at providing additional funding and economic protection against large losses from natural disasters...