The (potential) role of insurance sector in climate change economic policies

In the past few years, unstable and extreme weather patterns are increasingly occurring as phenomena of climate change and the link to greenhouse gas emissions is scientifically accepted. Extreme weather patterns cause major dam- age on health, property and business. Thus, the question is who is going to pay. In this paper, following a law and eco- nomics approach, the problem is analysed starting from the consideration that emitters of greenhouse gases externalize the true costs of their contribution to climate change. Efforts to recover these costs, which manifest both through the costs of impacts and the costs of efforts to prevent impacts, could imply a relevant role for the insurance sector. Be- cause the insurance sector is the world’s largest industry, the response of insurers to the broader climate-change chal- lenge will no doubt be extremely relevant to solve this internalization problem. Particularly the paper is about the role that insurance sector could play in the design of political economic solutions for climate change consequences. This role can be identified in different directions: (1) insurance coverage for claims of third-parties who allege injury or property damage; (2) insurance financial products to finance technological responses to climate change, such as mitiga- tion and adaptation. Specifically the indirect effect of the insurers is discussed in proactively stimulating climate change prevention behavior related to their customers in the view of the choice of political economic instruments.