climate change will affect the frequency and intensity of severe storms, but changes are possible, and societies can reduce vulnerabilities through improved forecasting. It is striking that, although normalized property damages caused by hurricanes in the United States in the twentieth century did not decline (because most houses cannot move when hurricanes are forecast), the loss of life was markedly reduced because better forecasting allowed people to evacuate.

  • Institutions. One of the most promising options is to conduct research leading to the development of improved institutions that will allow societies to withstand the greater risks that could be associated with abrupt climate change. Three examples—water systems, insurance, and statistical data—highlight the possibilities:

Water systems. Most evidence points to the likelihood that water systems will be severely stressed in the coming decades, and marginal regions face the possibility of droughts. Research can help identify better ways to manage water, such as the use of water markets or other flexible or innovative approaches that might prove to be useful strategies under scenarios of abrupt climate change (Intergovernmental Panel on Climate Change, 2001a).

Insurance. An important way that individuals or even countries can adapt to extreme events is through insurance against the ruinous effects of fires, floods, storms, and hurricanes. In essence, the existence of insurance promotes risk-taking behavior. Because losses from some of these risks are highly skewed, insurance payouts from time to time will be extremely large and will threaten to exhaust the reserves of insurance companies. Through the development of new instruments, such as weather derivatives and catastrophe bonds, markets can accommodate extreme events. One important adaptation would be the development of better instruments to spread the large losses ($50 billion and up) attributed to extreme weather and other events; they should be priced realistically to reflect the risks to discourage excessive risk-taking. Research into the value of such better instruments is needed.

Statistical data. Analysis of statistical data may help identify beneficial, low-cost ways to reform rules concerning flood-plain and coastal management.



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