Natural disasters and economic growth: Exploring the intervening role of insurance and reinsurance

Abstract

Natural disasters/catastrophes have been recognized as significant threats to economic growth as they result in one of the highest economic losses. However, previous studies have found conflicting results, and the role of moderating variables such as insurance and reinsurance, in this relationship has been under-researched. This dissertation aims to address this gap by investigating the intervening role of insurance and reinsurance in the relationship between natural disasters and economic growth focusing on OECD nations. By addressing this gap, the study contributes to a deeper understanding of how insurance and reinsurance mechanisms can mitigate the economic impacts of natural disasters and foster resilience in affected economies. This study examines the period 1990-2023 due to the increase in frequency, severity, and occurrence of natural disasters in this period. Using panel data and the Generalized Methods of Moments (GMM) estimation model the results reveal that natural disasters variables have an overall negative impact on economic growth. Additionally, the empirical results show that insurance and reinsurance positively influence economic growth. More so, the findings present that insurance and reinsurance significantly and positively moderate the relationship between natural disasters and economic growth. This implies that strengthening insurance and reinsurance mechanisms enhances economic resilience and supports economic growth in the face of natural disasters. Thus, in the absence of insurance and reinsurance, natural disasters place a heavy financial burden on public systems such as healthcare, thereby impeding economic growth. The presence of these risk mechanisms fosters financial stability in the presence of natural disasters. The study recommends public-private partnership to broaden insurance participation and accessibility. It also encourages investment in new and innovative insurance mechanism such an Insurtech and or parametric insurance to effectively mitigate disaster losses.