Although economic losses from natural catastrophes are on the rise, companies and individuals are failing to prepare for low-probability, high-consequence events, found a study 'Managing Catastrophic Risk' by Howard C. Kunreuther of the Wharton School for Risk Management and Geoffrey M. Heal, a finance and economics professor at Columbia Business School, reports CFO.com. The authors see the underlying reasons for not insuring against catastrophic risk in the following reasons: budgeting based on experience rather than analysis; underweighting the future; procrastination and interdependencies
The authors urge governments and industries to cooperate and 'move beyond private-market solutions to protect themselves from catastrophic risks. Their recommendations include short-term economic incentives for firms for protection measures, insurance coverage, addressing interdependencies, coordination and sharing best practices.
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