His research focuses on managing and financing losses due to technological and natural hazards[2] such as high-level radioactive waste repositories,[3] and extreme events such as climate change,[4] terrorism,[5] earthquakes,[6] floods,[7] and hurricanes.[8]
Howard Kunreuther died on August 1, 2023, at the age of 84.[9]
In an interdependent world, the risks faced by any one agent depend not only on its choices but also on those of others. One weak link in a system can cause large losses to others. An example is the bombing of Pan Am Flight 103 in 1988: the bomb was loaded onto a plane at a low-security airport in Malta and transferred to Pan Am 103 where it was set to explode when the plane was 25,000 feet in the air.[10]
Guiding Principles for Insurance
Insurance premiums should be based on risk[11] in order to provide signals to individuals as to the hazards they face and to encourage them to engage in cost-effective mitigation measures[12] to reduce their vulnerability to catastrophes.
Affordability of insurance for low-income residents is an important concern if premiums rise to a level that low-income residents cannot afford. Kunreuther has proposed a mechanism whereby low-income homeowners could receive a voucher to cover the costs of protecting their property.[13]
The Behavioral Risk Audit
It is important to understand why people often do not purchase insurance voluntarily. When dealing with uncertain and risky events, individuals tend to be myopic, optimistic and to prefer the status quo. A behavioral risk audit addresses these cognitive biases so that individuals are more likely to pay attention to the potential consequences of low-probability events. Remedial solutions are proposed that work with rather than against people’s risk perceptions and decision biases. When combined with short-term economic incentives, individuals are likely to consider investing in protective measures that reduce the potential consequences of future catastrophic events.[14]
Kunreuther, H. C., & Michel-Kerjan, E. O. (2011). At War with the Weather: Managing Large-scale Risks in a New Era of Catastrophes. MIT Press. ISBN9780262516549. Winner of the 2011 Kulp-Wright Book Award, presented annually by the American Risk and Insurance Association to the author of a book considered to be the most influential text published on the economics of risk management and insurance.
