In an effort to better manage risks during a period of large-scale catastrophes, insurers should consider offering long-term policies to homeowners in hazard-prone areas.
"Such a long-term policy could be tied to a mortgage, and home improvement loans can encourage the adoption of cost-effective mitigation measures," says a report co-authored by the Wharton University of Pennsylvania, the Insurance Information Institute and Georgia State University.
"A program of insurance vouchers, similar in concept to food stamps, could assist low-income residents in disaster-prone areas to purchase adequate insurance coverage."
The report found that, among other things, most homeowners in hazard-prone areas consider only premium payments, without taking into consideration the benefits of protection, when considering their insurance purchases.

"They often choose low deductibles, are influenced by budget constraints and are likely to underestimate the risk," says the report, entitled 'Managing Large-Scale Risks in a New Era of Catastrophes.'
Similarly, many homeowners "do not mitigate [the potential of disaster to] their homes because they cannot justify the up-front cost relative to the perceived benefits..."
At the same time, the report notes, if regulators require insurers to suppress rates, then premiums will not reflect the risks and private carriers may not be able to offer appropriate levels of insurance.
Offering long-term homeowners' insurance is one among a series of other recommendations contained in the report.
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