ABSTRACT
A 2006 report by the United Nations framework convention on climate change (UNFCCC) argued that by 2040 it is likely that the damage resulting from climate change might be as high as $1 trillion annually. The chapter focuses on climate change that affects the incidence of weather-related catastrophes. It defines natural catastrophes for the purpose of this chapter as a weather-related event that occurs infrequently, but causes very significant human and financial losses. The chapter describes the challenges of dealing with uncertainty in catastrophe management. It uses a supply-demand framework to analyze the specific actors and anomalies of the catastrophe insurance market. These models include intuitive and deliberative thinking, prospect theory and the goal-based model of choice. The chapter applies the supply-demand framework to analyze China's catastrophe insurance market, and explain why no catastrophe insurance system has been instituted even since the Great Sichuan Earthquake of 2008.
