Community-Based Disaster Insurance for Sustainable Economic Loss Risk Mitigation: A Systematic Literature Review

Abstract

This systematic literature review (SLR) explores the role of community-based catastrophe insurance (CBCI) as a tool for sustainable economic loss risk mitigation. Utilizing bibliometric analysis and a literature review, this study aims to reveal the methods employed in CBCI schemes from a novel perspective, highlighting their effectiveness in mitigating catastrophe risks. The PRISMA (Preferred Reporting Items for Systematic Reviews and Meta-Analyses) methodology was employed to systematically collect and analyze articles sourced from the Scopus, ScienceDirect, and Dimensions databases. The findings provide a comprehensive summary of the CBCI implementation, including various considerations such as risk-sharing mechanisms, premium determination, and policy frameworks. This research offers a fresh perspective on CBCI as a sustainable approach to catastrophe risk mitigation, contributing valuable insights to policymakers, practitioners, and researchers interested in community resilience and disaster risk management.

1. Introduction

Insurance is a crucial component in the aftermath of calamities, yet numerous households and small enterprises lack the necessary savings to independently finance the restoration and reconstruction process (Bhutta and Dettling 2018). Catastrophe assistance may prove inadequate and delayed, resulting in individuals affected by disasters facing hardship and an uncertain future. Therefore, insurance serves as a crucial means of promptly providing sufficient funds for recovery. However, a significant number of people remain without insurance coverage for catastrophes, which is commonly known as the “protection gap”. The consequences of this protection gap can have a domino effect, as having the financial means to repair and reconstruct is connected to various facets of one’s overall well-being (McKnight 2019). This includes reducing the stress associated with recovery and ensuring that funds are not redirected from other essential expenses.

Despite its significance, a considerable number of households and businesses worldwide, facing potential disaster risks, lack insurance coverage. According to estimates from the catastrophe modeling company AIR, only approximately a quarter of the economic losses resulting from natural catastrophes are insured on a global scale, with the uninsured portion potentially surpassing one trillion US dollars during exceptionally severe years (AIR 2019).

The enduring catastrophe protection gap worldwide can be attributed to numerous factors. Those in vulnerable positions might lack awareness regarding the dangers they are exposed to or the potential harm they could suffer. Additionally, they may possess limited financial knowledge or a lack of understanding regarding the significance of disaster insurance in the recovery process. Extensive research has shown that when faced with risks, individuals may exhibit various cognitive biases in their decision making, which could dissuade them from adopting proactive risk management measures such as acquiring insurance coverage (Dillon 2017).

We should explore innovative models for delivering catastrophe insurance that can ensure widespread coverage for disasters and contribute to the resilience of communities after a catastrophic event. One such approach is known as community-based catastrophe insurance (CBCI). In a CBCI program, a community, broadly defined as any community organization, specialized district, or public entity, takes the initiative to obtain insurance protection on behalf of its members or for their benefit. By securing coverage for a collective of properties, CBCI has the potential to address the protection gap associated with catastrophes, enhancing the financial recovery prospects of communities.

Recently, a CBCI scheme has been introduced. In contrast to catastrophe insurance schemes in general, which buy premiums at large prices, the CBCI scheme offers lower premiums to the community so that they can interact with financing strategies for hazard mitigation at the community level. This approach can be implemented in nations that face susceptibility to disasters and confront significant challenges in safeguarding their communities and economies from the adverse consequences of such events.

However, a good CBCI concept does not guarantee that the concept does not have obstacles or shortcomings. Therefore, we conducted a systematic literature review regarding CBCI as an approach to obtain an overview of existing studies regarding CBCI as sustainable catastrophe risk mitigation. To be precise, the research questions (RQs) below are examined.

RQ 1: what are the purposes behind community-based-catastrophe-insurance-related research?

RQ 2: what are the special features of community-based catastrophe insurance that makes it different than the traditional one?

RQ 3: what risks does the authors point out in relation to community-based catastrophe insurance schemes?

RQ 4: what are the risk transfer options proposed in the study?

RQ 5: what is the proposed method for raising funds in such a community-based catastrophe insurance scheme?

RQ 6: what factors influence the sustainability of community-based catastrophe insurance?

RQ 7: what are the challenges in implementing community-based catastrophe insurance?

Meanwhile, the novelty of this research is that the risks used in CBCI explain the importance of post-disaster funding through CBCI within the selected risk range. In other words, there is no limit to the risks involved when the risks in CBCI are adjusted to the community and region concerned. Additionally, the research questions explored in this study have not been considered in previous research. This study used the Preferred Reporting Items for Systematic Reviews and Meta-Analyses (PRISMA) method, which utilizes detailed flow diagrams to increase the correspondence between the articles retrieved and the topics studied (Page et al. 2021).There are three main stages in this process: collecting, selecting, and reviewing articles. All stages were carried out independently, without conflicts of interest, to minimize bias. The article collection stage was carried out based on criteria checked through the Scopus, ScienceDirect, and Dimensions database search engines. Then, the articles obtained at this stage were selected at the next stage by reading the abstract and full text of all articles. Finally, the review stage was carried out based on the research question set out in the article. After the review was carried out, we also analyzed and discussed future research opportunities. This research presents several options for developing a CBCI framework, which can be pursued by other researchers. This research can provide insight into the CBCI framework and motivate other researchers to design frameworks that better fit reality.

2. An Overview of Community-Based Catastrophe Insurance (CBCI)

Referring to (Bernhardt and Sykes 2021) Community-Based Catastrophe Insurance (CBCI) refers to catastrophe insurance organized by a local government, quasi-governmental organization, or community association to protect a cluster of properties within the community. CBCI is characterized by two essential aspects: it is either procured or facilitated by a community entity, and it provides coverage for numerous properties. CBCI is an insurance scheme designed to provide protection for properties against losses caused by catastrophic events such as floods, earthquakes, hurricanes, and other natural disasters, specifically targeting low-income households. This approach allows communities to pool resources and share risks, making insurance coverage more affordable and accessible for vulnerable households that may otherwise be unable to afford traditional insurance policies.

CBCI can assume various roles within the dynamic landscape of existing public and private catastrophe insurance mechanisms. In most instances, it is logical for CBCI to function as a supplementary component to traditional property insurance markets, potentially taking the shape of additional disaster protection. This may involve offering modest financial assistance to community members in the aftermath of a catastrophe or delivering comprehensive, single-peril property coverage in high-risk regions. In areas where private insurance adoption is low or gaps in protection persist due to various factors, CBCI can offer communities a means to collaborate with insurance companies or private investors to restore and maintain insurance adoption while addressing the challenges of loss volatility. Even in cases where a community chooses to replace existing private coverage with CBCI, this is likely to create partnership opportunities for insurers or reinsurers by providing risk capital to support the CBCI program.

CBCI has the potential to provide three significant advantages, outlined as follows. Firstly, it enhances the financial resilience of communities and their inhabitants. A substantial body of research demonstrates that individuals and communities with insurance recover more effectively and swiftly from catastrophe compared to those without insurance, particularly benefiting lower-income households that lack alternative means to finance recovery efforts (Kousky and Kunreuther 2018; Nguyen and Noy 2018). Moreover, the influx of insurance funds expedites the process of rebuilding in affected areas and contributes to improved economic output in the aftermath of disasters as the proportion of insured damages increases (von Peter et al. 2012), (Melecky and Raddatz 2011). This, in turn, can help maintain tax revenue and shield communities from credit rating downgrades. In contrast, communities relying on disaster relief rather than insurance following a loss event encounter substantial uncertainty and complexity, with limited control over the recovery process for both the community and its residents. The second advantage lies in the potential for CBCI to reduce insurance premiums through five potential mechanisms, collectively improving the affordability and accessibility of coverage. By attracting a broader range of participants into the risk pool, including individuals with lower risk profiles, it could lead to a decrease in necessary premiums. Communities could offer insurers better data and information to identify areas with lower risk, justifying the provision of reduced rates. This could be particularly relevant for perils like floods, where minor changes in local conditions, public policies, and mitigation efforts can substantially impact risk levels. As CBCI is administered by a community with broader social objectives, it could incorporate means-tested affordability programs or other targeted assistance measures into its design. Furthermore, CBCI can be linked to community investments in risk reduction, such as enhancing levees or implementing green infrastructure, which can, in turn, result in lower premiums. Addressing the affordability of coverage also enhances its availability, making it accessible to a wider portion of the population on a voluntary basis. Additionally, coverage availability could be expanded through incentives integrated into the CBCI program, such as making coverage a prerequisite for community membership or offering it as an “opt-out” option for all residents. Moreover, given that one of the primary objectives of a CBCI program is to provide and sustain coverage within a specific community, it can serve as a dependable source of insurance for community members following catastrophes, especially when private insurers might withdraw from the market or significantly raise their premium rates. The third possible advantage of CBCI is its alignment with community-level risk reduction efforts. Traditional disaster insurance policies operate on an individual property basis, which makes it challenging to use insurance as a motivator for mitigating community-wide hazards like levees or ecosystem-based initiatives such as restoring wetlands. However, community-level risk reduction is often the most effective and economically sensible approach to managing specific risks. Furthermore, such interventions can yield various additional benefits that contribute to other community objectives. Unlike insurance coverage at the property level, a CBCI program establishes a mechanism for offering financial incentives for community-scale mitigation efforts.

CBCI could also encourage individuals to participate in location-specific risk reduction efforts, similar to how existing private and public insurers offer incentives (for instance, by providing premium reductions for actions like raising a home, as seen in flood insurance). Furthermore, it has the potential to enhance or establish social capital within a particular community, as discussed (Hudson et al. 2020). The concept of CBCI is flexible regarding the definition of “community”. It could represent a municipal government agency, a special-purpose district, or even a neighborhood association. In essence, a community is any entity with the authority to arrange or facilitate insurance coverage for multiple properties. The CBCI policy could pertain to a single hazard, like flood, or encompass multiple hazards, such as both flood and wildfire. While the community insurance idea can be applied to various risks, such as community health, this paper specifically concentrates on natural disaster coverage. Some communities may confront substantial risk or insurance gaps for only one peril, while numerous other communities might be exposed to multiple disasters with limited insurance coverage for all of them.

Four distinct institutional frameworks for CBCI illustrate the varying roles and responsibilities of the community and its partners: a Facilitator Model, a Group Policy Model, an Aggregator Model, and a Community Captive Model (see Figure 1). The level of involvement and accountability of the community increases progressively from the first to the fourth model. In the initial model, the community primarily serves as a facilitator and negotiator. In the second model, it assumes a role in distribution by selecting insurance options and collecting premiums. In the third model, the community has a dual role: as the insured party on a community contract with a reinsurer and as the allocator of claims funds. The fourth model leverages an existing institutional structure, an insurance captive, which empowers the community to provide disaster policies. In all scenarios, the community could offer coverage that property owners can choose to purchase voluntarily. However, there might be a few instances where the community mandates residents to obtain coverage. When coverage is voluntary, though, the community would likely need to introduce incentives to encourage the widespread adoption of insurance.

Bernhardt and Sykes (2021) state there is an iterative five-part process in the implementation of CBCI. The initial step involves identifying the community’s needs or problems being addressed. The CBCI model is highly adaptable and can be customized to address specific hazards and populations relevant to the community. It is important to determine the type of disaster protection required, as the policy may provide multi-hazard coverage, addressing property damage or other disaster-related losses. Key factors include the target population and their income levels. Identifying specific risks and populations is crucial, as it informs other aspects of the program’s design. This process also involves assessing the population’s current acceptance or interest in protection and their willingness and capacity to pay for it. Although community needs and interests may differ, CBCI implementation should focus on protection measures that will have a direct and measurable impact on community resilience. Narrowing the focus to feasible solutions will require iterative processes, with stakeholder engagement being vital for establishing both short-term and long-term community goals. Second, one must determine the authority to act. Community organizations interested in implementing CBCI should evaluate their authority to carry out the required activities. This authority may vary depending on the chosen delivery model, and in some cases, existing regulations will determine the most suitable approach for a particular local entity. For instance, the ability to levy taxes or fees, the presence of existing institutions, or the need for policy reforms, legislative changes, political support, and state insurance regulatory oversight are critical considerations in understanding the prerequisites for offering coverage to constituents. Municipalities exploring CBCI will have their own administrative procedures governing how they may proceed. For example, in New York City, each benefit program must be approved through an ordinance to define the beneficiaries and the amounts they will receive. This process likely applies to CBCI programs as well. For a comprehensive explanation of how CBCI is implemented in New York City, refer to the study by (Bernhardt and Sykes 2021). Third, one must engage stakeholders. Engaging the community early in the process of implementing CBCI is crucial for shaping all subsequent decisions. Early involvement ensures that the community’s specific needs, concerns, and preferences are understood, which allows the program to be tailored to effectively address local risks. Moreover, active engagement fosters trust and encourages participation, both of which are essential for successful program adoption. Equally important is the need to communicate and educate the community about the risks they face and the available mitigation options. By raising awareness and providing clear information, communities are better equipped to understand the benefits of CBCI and make informed decisions about their protection. This educational component helps enhance community resilience, as individuals are more likely to adopt and support protective measures when they fully comprehend the potential impacts of disasters and how they can mitigate them. Fourth, one must analyze risk. Analyzing risk is a critical component of designing a successful CBCI program. To develop effective risk transfer structures and risk reduction mechanisms, it is essential to capture accurate data and apply robust modeling techniques. This enables a thorough understanding of the specific risks faced by the community, such as natural disasters or other hazards. By analyzing these risks, program designers can tailor the coverage to address the most relevant threats. Additionally, the use of data-driven insights allows for the setting of risk-based and means-based premiums, ensuring that the cost of coverage reflects both the severity of the risks and the financial capacity of the community. Proper risk assessment ensures that the CBCI program is sustainable, affordable, and capable of providing meaningful protection to vulnerable populations, while also encouraging proactive risk reduction measures. Last, one must transfer the risk. Transferring risk in a CBCI program involves selecting the appropriate capital providers and structuring premium payment and claims disbursement systems to ensure financial sustainability and accessibility. Key capital providers may include reinsurers, insurers, government programs, residual market mechanisms, and captive insurance entities. Each of these options offers different benefits in terms of capacity, pricing, and risk-bearing abilities. Additionally, determining premium payment options is crucial, taking into account funding sources for purchasing coverage, such as community assessments or subsidies to ensure affordability for participants. Flexible payment structures may be needed to accommodate different financial capacities within the community. Lastly, mapping out efficient claim payment options is vital to ensure timely and equitable distribution of funds in the event of a disaster. This could involve direct disbursements, community-based claims handling, or partnerships with local financial institutions to expedite relief efforts.

3. Research Methodology

In this section, we describe this research process, outlining the procedures involved, including the collection of article data and the subsequent article selection. Our approach to reviewing community-based catastrophe insurance as a means of sustainable risk mitigation adhered to the Preferred Reporting Items for Systematic Review and Meta-Analyses (PRISMA) method. This method was used because it employs a comprehensive flowchart to enhance the appropriateness of the identified articles for the specific themes under selection (Page et al. 2021). The criteria employed for collecting articles in this study are outlined as follows.

(a)

Article type was original research or review written in English.

(b)

Article was published between 1 January 2013 and 31 December 2023.

(c)

Article was indexed by one of three selected databases, Scopus, ScienceDirect, or Dimensions, with the following words in article title, abstract, or keywords: “Community-Based” AND (“Catastrophe” OR “Catastrophic” OR “CAT” OR “Natural Disaster”) AND “Insurance”.

All criteria were independently validated to ensure compliance without any conflict of interest, aiming to minimize bias. The assessment of criteria (a) to (c) involved utilizing a search engine within the selected databases. Specifically, for point (c), the designated words were input into the article search field. Before initiating the search, the advanced search icon was activated, and the parameters for year, language, and article type were set in accordance with those specified in points (a) and (b).

The subsequent phase involved the semi-automatic selection of articles using JabRef software to guarantee precision and relevance to the study’s focus. JabRef software helps one find similar articles and view the title and abstract of articles effectively. The file format required to use this software is the .bib format. We can export this format through each database. Elimination of similar and unavailable articles was carried out. Considering that articles might be indexed in multiple databases simultaneously, potential duplicates were identified and removed. Additionally, articles that were not accessible from publishers were excluded. Furthermore, the manual selection process comprised the following steps (Rivero et al. 2015; Sukono et al. 2022; Ibrahim et al. 2023).

(a)

First: Title and abstract-based article selection. This step involved reviewing the titles and abstracts of articles to make selections based on their relevance to the research topic. This streamlined approach expedited the selection process, with articles lacking alignment between their titles/abstracts and the research topic being excluded.

(b)

Second: Thorough reading for article selection. Articles shortlisted from the previous stage underwent a detailed, one-by-one examination to confirm their relevance to the research topic.

(c)

Third: Fully reading article. All existing articles were described and reviewed comprehensively based on the research questions in Section 1.

4. Results

4.1. Article Data Collection and Article Selection Results

The results of the semi-automatic and manual selection that met the criteria (a) to (c) from the selected databases are follows. A total of 62 articles were acquired from the selected databases, with 11, 3, and 48 articles retrieved from the Scopus, ScienceDirect, and Dimensions databases, respectively. These findings are outlined in

Table 1. Article data collection from Scopus, ScienceDirect, and Dimensions databases.

Database	The Number of Articles
Scopus	11
ScienceDirect	3
Dimensions	48
Total	62

.

The semi-automatic selection using JabRef software resulted in 8 articles being excluded and 54 articles remaining. Furthermore, manual selection based on titles and abstracts resulted in 32 articles being excluded and 22 articles remaining. After that, 22 articles were reviewed comprehensively, resulting in 10 articles that were not relevant to the research question and the remaining 12 articles that were more appropriate. A visual representation illustrating the outcomes of the article data collection and selection process is depicted in Figure 2.

The 12 articles were written by Djalante et al. (2013), Marulanda et al. (2014), Sadiq and Noonan (2015), Davies (2015), Aslan et al. (2016), Sawada (2017), Sarmiento and Torres-Muñoz (2020), Hofmann (2022), Lim et al. (2022), Chen et al. (2023), Ash-Shidiqqi et al. (2023), and Pratiti (2023). These articles can be viewed at https://bit.ly/40Zxkv7 (accessed on 1 July 2024).

4.2. Articles’ Description

First, the authors’ affiliated country was identified. We see a correlation between authors’ affiliation countries and countries with highest index of exposure in the world (see Figure 3). More than half of the authors’ affiliated countries are countries with the highest exposure index in the world. Moreover, China has the second highest number of authors’ affiliated countries which is directly proportional to the highest level of exposure index.

Second, we identified the number of selected articles per year. There is a positive trend regarding community-based catastrophe insurance (CBCI) (see Figure 4). This can also indicate that there is a CBCI scheme that can be applied in the future. In addition to researchers (authors) being a part of the community, they have contributed to CBCI schemes.

Third, we identified the popular topics of 12 articles. The prevalence of pertinent words in the keywords field and in the title and abstract fields, which determines the popularity of topics, i depicted visually in Figure 5a,b, respectively, generated using VOSviewer software. This visualization not only showcases the frequency of words but also illustrates their relations. For simplicity, only words occurring more than once are included in the figure. Moreover, we also present a visualization of popular topics related to previous visualizations by year in Figure 5c,d.

The size of each circle corresponds to the frequency of each word’s occurrence in the eleven articles. Larger circles signify more frequent discussions of the words, while smaller circles indicate fewer mentions. Additionally, the connecting lines between the circles signify relationships between the words. A greater number of connecting lines to a circle indicates more associations between that word and others. The color of each circle denotes the word cluster; circles sharing the same color are part of the same cluster. Lastly, the distance between circles reflects the strength of the link between the words within them. Smaller distances indicate stronger associations between the words.

Figure 5a shows that “climate change” and “resilience” have a strong relationship, just like “insurance” and “manmade disasters”, “community disaster resilience” and “community management”, and “disaster preparedness” and “disaster recovery”. Figure 5b shows “disasters” and “integrated disaster resilience” are keywords used in the initial year of criteria restrictions. Meanwhile, “health effects” and “disaster recovery” are keywords used in the year-end limitation criteria. In other words, “health effects” and “disaster recovery” are the newest topics in the 12 articles reviewed.

Figure 5c shows circles featuring the words “community”, ”disaster”, and “insurance” characterized by their substantial size, short connecting lines, and placement in distinct clusters. This signifies a strong connection between these three words, indicating their prominence among the twelve most frequently discussed topics across the articles. Another set of words, including “analysis”, “model”, “case study”, and “mechanism”, denotes the research objectives within the articles. This suggests that, in addition to the community-based catastrophe insurance (CBCI) strategy, the twelve articles also delve into application analysis, models, mechanisms, and case studies. Distinct groups of words, such as “government”, “life”, “flood”, and “risk transfer” embody the concepts associated with CBCI. This indicates that the factor variables within the community are integral components. In a separate circle, the words “disaster risk reduction”, “mitigation behavior”, “study”, and “resilience” highlight the benefits attributed to CBCI. Finally, a circle encompassing the words “climate change”, “society”, “market”, and “person” illustrates the factors influencing CBCI. Figure 5d shows that “disaster”, “natural disaster”, and “insurance” are the newest keywords used in 12 articles, while “strategy” and “mechanism” are keywords used in the initial year of criteria restrictions or, we can say, the oldest keywords used in these 12 articles.

4.3. Results from Systematic Literature Review

4.3.1. The Purpose of Research on Community-Based Catastrophe Insurance

To answer research question (RQ) 1: what are the purposes behind community-based catastrophe insurance-related research? we conducted an analysis of community-based catastrophe insurance (CBCI) in 12 articles. Following a thorough review of the selected articles, we found three types of categories (see Figure 6).

The three types of topics are explained in more detail as follows.

• Review: the articles focus on reviewing and summarizing previous research regarding CBCI.
• Case study and Pricing Framework: the articles focus on determining insurance premiums or prices in a community or region.
• Scheme and Strategy: the articles focus on the initial steps of CBCI.

Based on Figure 6, the bibliometric analysis results indicate that articles related to community-based catastrophe insurance (CBCI) are dominated by the review category. This suggests that the CBCI concept is still in the exploration and understanding phase, where researchers are more focused on evaluating existing methods and approaches rather than implementing or developing new practices. The dominance of review articles signifies that the CBCI approach to mitigating economic loss risk is not yet fully developed and requires further research for effective application in community contexts. This interpretation underscores that the current literature is more oriented toward mapping issues and potential solutions rather than direct implementation in economic loss risk mitigation schemes.

4.3.2. The Different between Community-Based Catastrophe Insurance and Traditional Catastrophe Insurance

CBCI is distinguished from traditional insurance models by several unique features that cater specifically to the needs of communities, particularly low-income households. Here are some of the key special features based on 12 articles and Bernhardt and Sykes (2021) presented in

Table 2. The Differences between CBCI and traditional catastrophe insurance.

Feature	Community-Based Catastrophe Insurance	Traditional Catastrophe Insurance
Coverage arrangement	Arranged by a local government or quasi-governmental body to cover a group of properties or individuals within a community’s jurisdiction.	Purchased individually by households or businesses for their properties.
Target audience	Often targets communities, especially low-income households and small businesses with limited access to insurance.	Generally available to anyone who can afford the premiums.
Premium affordability	Uses collective purchasing power to negotiate better premiums, making insurance more affordable.	Premiums are typically higher and may be unaffordable for low-income households.
Risk-sharing	Risk is spread across the entire community, reducing the burden on individual members.	Risk is borne solely by the individual policyholder.
Focus on catastrophe protection gap	Specifically designed to close the protection gap by covering those who might otherwise be uninsured.	Does not directly address the disaster protection gap; coverage is based on individual purchase decisions.
Dependency on external aid	Reduces dependence on federal financial relief post-disaster.	Higher reliance on government aid in the absence of insurance coverage.

.

These differences highlight how CBCI is tailored to provide broader, more accessible protection, especially for communities that might struggle with affordability or lack awareness of traditional insurance options.

4.3.3. Type of Hazard, Exposure, and Vulnerability of Community-Based Catastrophe Insurance

CBCI is part of catastrophe insurance. Therefore, according to (Wang et al. 2023) it is necessary to clarify the “price of catastrophe risk”, which involves three components: hazard, exposure, and vulnerability (Aerts et al. 2013; Akgün et al. 2015; Arnette and Zobel 2019). And this led us to answer RQ 3: what risks does the authors use in relation to community-based catastrophe insurance schemes? Below we summarized the hazard, exposure, and vulnerability involved in CBCI in

Table 3. Risks present in CBCI.

Authors	Hazard	Exposure	Vulnerability
Djalante et al. (2013)	all caused by climate change and natural hazard	people	-
Marulanda et al. (2014)	earthquake	asset (private building)	the expected annual loss and the probable maximum loss
Sadiq and Noonan (2015)	flood	-	-
Davies (2015)	natural hazard	-	-
Aslan et al. (2016)	natural disaster	people and asset (property)	actuarial estimates of the loss
Sawada (2017)	natural disaster and manmade disaster	people and asset	loss of any variable used
Sarmiento and Torres-Muñoz (2020)	earthquake and landslides	people	losses generate
Hofmann (2022)	disaster	asset (house)	-
Lim et al. (2022)	natural disaster	-	-
Chen et al. (2023)	natural disaster	-	-
Ash-Shidiqqi et al. (2023)	natural disaster	-	-
Pratiti (2023)	natural disaster and manmade disaster	people and asset (health)	-

. Not many authors have covered all risk factors when considering the CBCI scheme for a community. This is related to RQ 1, where more authors aim to review previous research rather than formulating CBCI premiums or prices.

4.3.4. Risk Transfer Options in Community-Based Catastrophe Insurance

In exploring risk transfer options for CBCI, it is essential to understand the various mechanisms available to shift financial risks away from communities impacted by catastrophe. This section addresses RQ 4: what are the risk transfer options proposed in the study? Effective risk transfer is critical to enhancing community resilience, ensuring that the financial burden of disaster recovery does not solely fall on local populations. By analyzing these options, this section aims to identify the most viable approaches to transferring disaster-related risks within CBCI frameworks presented in

Table 4. Risk transfer options used in CBCI Scheme.

Authors	Insurance or Reinsurance Mechanism	Government or NGO Support	Others
Djalante et al. (2013)	$\surd$	$\surd$	$-$
Marulanda et al. (2014)	$\surd$	$-$	$-$
Sadiq and Noonan (2015)	$\surd$	$-$	$\surd$
Davies (2015)	$-$	$-$	$-$
Aslan et al. (2016)	$-$	$-$	$\surd$
Sawada (2017)	$\surd$	$\surd$	$-$
Sarmiento and Torres-Muñoz (2020)	$\surd$	$-$	$-$
Hofmann (2022)	$\surd$	$-$	$-$
Lim et al. (2022)	$-$	$-$	$-$
Chen et al. (2023)	$\surd$	$\surd$	$\surd$
Ash-Shidiqqi et al. (2023)	$\surd$	$\surd$	$\surd$
Pratiti (2023)	$-$	$-$	$-$

.

The option of an insurance or reinsurance mechanism emphasizes the importance of catastrophe insurance, which provides financial protection to individuals and communities against losses incurred during disaster events (Chen et al. 2023). Meanwhile, government agencies and non-governmental organizations (NGOs) can play a crucial role in risk transfer by providing financial assistance and resources during and after disasters. This support can include direct funding for recovery efforts as well as the establishment of emergency funds that communities can access in times of need. Other options include the community rating systems (CRSs) by Sadiq and Noonan (2015), catastrophe equity puts (CatEPuts) by Aslan et al. (2016), community-based risk pool by Chen et al. (2023), and Ash-Shidiqqi et al.’s (2023) proposed public–private partnership.

4.3.5. Premium Structures in Community-Based Catastrophe Insurance

This section answers RQ 5: what methods to determine funds (premium) in such a community-based catastrophe insurance scheme? Determining the premium structure in a CBCI scheme is a fundamental process that ensures the sustainability and effectiveness of the insurance coverage provided to members (Sawada 2017). Premiums are contributions made by community members and must be carefully structured to balance affordability for participants while maintaining sufficient funds to cover potential disaster losses. The 12 articles discuss various methods to determine premiums, the results of which we summarize in Figure 7.

Risk-based premiums are often calculated based on the level of risk faced by the insured community. Communities in higher-risk areas (e.g., flood zones or regions prone to hurricanes) generally face higher premiums (Ash-Shidiqqi et al. 2023). These premiums are determined through risk modeling and historical data analysis. In some schemes, premiums are adjusted based on the income level or ability to pay within the target population; these are called means-based premiums. This allows for more equitable access to catastrophe insurance. Some schemes such as multi-hazard coverage offer coverage for multiple hazards, which can affect premium rates (Hofmann 2022). A comprehensive policy may spread the risk and lower individual hazard premiums but increase the total cost.

4.3.6. Factors Influencing the Sustainability of Community-Based Catastrophe Insurance

The sustainability of CBCI is influenced by a multitude of factors that shape its effectiveness and longevity. Key factors included while answering RQ 6: what factors influence the sustainability of community-based catastrophe insurance? can be seen in Figure 8.

First, community engagement, the active participation and engagement of community members in the insurance program, is crucial (Djalante et al. 2013). Sustainable models depend on the willingness of individuals to contribute, adhere to risk reduction measures, and collaborate in managing collective risks (Schaffrannek 2019). Second, risk communication and education are necessary. Effective communication about risks, the benefits of insurance, and risk reduction strategies are essential. Community members need to be well-informed in order to make informed decisions, enhancing the sustainability of the insurance program (Sadiq and Noonan 2015). Third, financial stability and viability are important. The financial stability of the insurance pool is fundamental for sustainability (Belias et al. 2023). Adequate premium contributions, proper risk assessment, and sound financial management ensure that the community-based insurance remains viable over the long term. Fourth, government support and regulation are crucial. Supportive government policies and regulations can bolster the sustainability of CBCI (Melecky and Raddatz 2011). Clear regulatory frameworks and financial backing can create an environment conducive to the growth and stability of such insurance schemes. Fifth, adaptability to changing risks, the ability of the insurance model to adapt to evolving risks, including climate change and other dynamic factors, is critical (Pratiti 2023). Sustainable programs incorporate mechanisms for periodic reassessment and adjustments to stay relevant. Sixth, trust and social capital are necessary. Building and maintaining trust within the community is essential (Lansing et al. 2023). Social capital, characterized by strong social ties and cooperation, contributes to the sustainability of CBCI by fostering a sense of collective responsibility. Seventh, effective governance and management are necessary. Transparent and effective governance structures are vital for the sustainability of CBCI (Sawada 2017). Efficient management, clear decision-making processes, and accountability enhance the overall effectiveness of the program. Eighth, inclusive design and accessibility, the inclusivity of the insurance design, ensuring that it caters to the diverse needs of the community, contributes to sustainability. Programs that are accessible to a broad demographic and address varying levels of vulnerability are more likely to endure (Shiraev and Levy 2020). Ninth, continuous risk monitoring and assessment is necessary. Regular monitoring and assessment of risks within the community help identify emerging threats (Buckland et al. 2023). Sustainable insurance models incorporate mechanisms for continuous risk evaluation to ensure timely adjustments to coverage and premiums. Tenth, community resilience building is necessary. Initiatives that focus on building resilience within the community, such as training programs, infrastructure improvements, and disaster preparedness activities, contribute to the sustainability of the insurance model (Al-Maruf et al. 2023). Eleventh, technology integration, utilizing technology for risk modeling, communication, and claims processing can enhance the efficiency and sustainability of CBCI. Technological advancements contribute to improved risk management practices (Qayyum et al. 2023). Last, economic and social development is necessary. CBCI is often intertwined with broader economic and social development initiatives (Bernhardt and Sykes 2021). Enhancing the overall well-being of the community contributes to a more resilient and sustainable insurance model. By considering and addressing these factors, CBCI programs can be designed and implemented to withstand challenges and effectively contribute to the resilience of vulnerable communities over the long term.

4.3.7. Challenges of Community-Based Catastrophe Insurance

Lastly, there will always be challenges in a scheme. To minimize the failure of the CBCI scheme, it is necessary to answer RQ 7: what are the challenges in implementing community-based catastrophe insurance? Below we summarize the challenges that may be encountered when setting up CBCI and when CBCI is running.

• Limited financial resources: Communities with limited financial resources may struggle to afford insurance premiums (Nugraheni et al. 2022). Affordability is a critical factor in the success of CBCI, and addressing economic constraints is a significant challenge.
• Low risk perception: Some community members may underestimate the likelihood of catastrophic events, leading to low perceived value for insurance. Overcoming this challenge requires effective communication and education about the real risks and potential consequences of catastrophic events (Mori et al. 2023).
• Lack of awareness and education: Inadequate understanding of insurance concepts and the benefits of CBCI can hinder participation. Comprehensive awareness campaigns and educational programs are essential to overcome this challenge (Gonzales 2022).
• Trust issues and social dynamics: Building trust among community members and addressing social dynamics can be challenging. Trust is crucial for collective participation, and issues such as unequal power dynamics or community divisions may impact the success of the insurance program (Ashford and Hall 2018).
• Insufficient infrastructure: In regions with limited infrastructure, challenges in implementing CBCI may arise (Singh et al. 2023; Antwi et al. 2015). This includes difficulties in accessing and distributing information, collecting premiums, and processing claims efficiently.
• Regulatory and policy barriers: Existing regulations and policies may not always support the establishment and operation of CBCI. Overcoming regulatory barriers and advocating for policies that encourage such initiatives can be a challenge (Bernhardt and Sykes 2021).
• Cultural and language barriers: Cultural differences and language barriers can impede effective communication and understanding of insurance concepts (Djalante et al. 2013). Tailoring communication strategies to the cultural context is essential to address this challenge.
• Data analytics and management: Detailed data on community risks, historical loss data, and catastrophe probabilities are essential. This requires systems capable of collecting, processing, and analyzing these data to make informed decisions on premium setting and risk sharing (Peng et al. 2014).
• Sustainability of the insurance pool: Maintaining the financial sustainability of the insurance pool is a significant challenge. Adequate premium collection, financial management, and addressing adverse selection are crucial aspects to ensure long-term viability (Subramanian and Wang 2018; Strobl 2022).
• Resistance to change: Resistance to adopting new insurance models or behavioral changes within the community can be a challenge (Zhao et al. 2021; Bernhardt and Sykes 2021; McKnight 2019). Overcoming resistance requires effective communication and demonstrating the tangible benefits of CBCI.
• Environmental and climate change uncertainties: Climate change introduces uncertainties and increases the complexity of risk assessment. CBCI models must adapt to evolving environmental conditions and incorporate climate change considerations (Robinson et al. 2021; Debele et al. 2019).
• Legal and liability issues: Addressing legal and liability concerns, including issues related to claims processing, dispute resolution, and accountability, is crucial. Establishing clear legal frameworks can help mitigate these challenges (Miller et al. 2020; Griffen and Robinson 2023).
• Limited access to reinsurance: small-scale CBCI programs may face challenges in accessing reinsurance markets, limiting their ability to spread risk and manage catastrophic losses effectively (Song and Wang 2020; Bignami 2020; von Peter et al. 2012).
• Community demographics: demographic factors, such as population mobility, aging communities, or changing community structures, can impact the stability and effectiveness of CBCI (Twerefou et al. 2023).

Addressing these challenges requires a collaborative effort involving community members, insurers, policymakers, and other stakeholders. Tailoring solutions to the specific context and needs of each community is essential for successful implementation.

When it comes to responding to the challenges mentioned above, here are some ways of doing so that we identified from the analysis of 12 articles. Overcoming existing regulatory barriers to CBCI requires proactive engagement with policymakers and regulatory bodies. The first step is to identify the specific legal and policy constraints that may hinder CBCI implementation, such as state-level insurance regulations or limitations on local government powers. To address these, advocates for CBCI can propose policy reforms that align with broader disaster resilience goals, ensuring the program adheres to legal standards while demonstrating its benefits for public safety. Collaboration with regulatory agencies, such as state insurance commissions, can help streamline approval processes and ensure compliance. Building strong partnerships with local governments and national programs like the National Flood Insurance Program (NFIP) can also facilitate smoother integration and scalability of CBCI initiatives.

Building trust within the community and addressing social dynamics is equally challenging. This requires early and sustained engagement with local stakeholders, including community leaders, to foster transparency and gain buy-in for the program. Providing clear, accessible information about how CBCI works, its benefits, and its role in protecting vulnerable populations can help alleviate concerns. Engaging in inclusive dialogues, acknowledging diverse social and economic dynamics, and ensuring that the program is equitable in terms of affordability and access can further strengthen trust. By addressing cultural sensitivities, local governance structures, and community priorities, CBCI can become a trusted tool for disaster resilience and risk mitigation.

5. Discussion

In the exploration of CBCI for sustainable risk mitigation, our systematic literature review reveals significant insights into the current state of research and practice. The comprehensive analysis encompassed a thorough examination of articles obtained through meticulous criteria and selection processes. The identified literature not only offers a diverse panorama of methodologies and findings but also underscores the multifaceted nature of CBCI in mitigating the impacts of catastrophic events. A recurring theme across the reviewed articles is the emphasis on sustainability, reflecting a shared recognition of the need for enduring solutions to address the growing challenges posed by natural disasters. The discussions within the literature delve into the factors influencing the success and sustainability of CBCI, including community engagement, regulatory frameworks, and the intricate dynamics of risk perception. Additionally, the literature reveals evolving trends, such as the integration of technology in risk assessment and communication. As we navigate through the findings, this systematic review not only consolidates existing knowledge but also lays the groundwork for future research avenues and policy considerations in the realm of CBCI as a pivotal tool for sustainable risk mitigation. Below we created a list of the groundwork for future research.

(a)

Behavioral aspects and decision-making. Investigate the behavioral factors that influence community members’ decisions to participate in or opt out of CBCI. Understand the psychological drivers behind risk perception, trust-building, and the adoption of risk mitigation measures.

(b)

Long-term impact and resilience. Explore the long-term impacts of community-based insurance on the resilience of communities. Assess how sustained participation in insurance programs contributes to adaptive capacity, recovery, and overall community resilience in the face of recurring or multiple catastrophic events.

(c)

Dynamic risk modeling. Develop and refine dynamic risk models that can adapt to changing environmental conditions, including the effects of climate change. Investigate the integration of predictive analytics and emerging technologies to enhance the accuracy of risk assessments over time.

(d)

Inclusivity and equity. Examine the inclusivity of CBCI programs and their equitable distribution of benefits. Investigate how these programs can address the needs of vulnerable populations, marginalized groups, and those with limited access to resources.

(e)

Governmental support and policy frameworks. Analyze the role of governmental support and the effectiveness of policy frameworks in promoting and sustaining CBCI. Evaluate how regulatory environments and financial incentives influence the success and expansion of such programs.

(f)

Cross-cultural studies. Conduct cross-cultural studies to understand how CBCI models can be adapted to different cultural contexts. Explore the influence of cultural norms, values, and communication styles on the acceptance and effectiveness of insurance programs.

(g)

Technological integration and innovation. Investigate the potential of integrating emerging technologies, such as blockchain, satellite imaging, or artificial intelligence, into CBCI practices. Assess how technological innovations can streamline processes, improve risk modeling, and enhance communication within communities.

(h)

Community-based catastrophe insurance in urban settings. Explore the applicability and challenges of CBCI in urban settings. Investigate how the dynamics of urban communities, including population density, infrastructure, and governance structures, impact the implementation and success of insurance programs.

(i)

Behavioral economics and incentive structures. Apply principles from behavioral economics to design incentive structures that encourage active participation in CBCI. Explore the effectiveness of different incentive mechanisms in promoting risk reduction behaviors and sustained engagement.

(j)

Post-disaster recovery and insurance payouts. Investigate the effectiveness of community-based insurance in facilitating post-disaster recovery. Assess the timeliness and adequacy of insurance payouts in supporting communities to rebuild and recover following catastrophic events.

(k)

Collaboration with non-traditional stakeholders. Explore collaboration opportunities with non-traditional stakeholders, such as technology companies, social enterprises, and community-based organizations. Investigate how these collaborations can enhance the reach, affordability, and effectiveness of CBCI.

(l)

Social networks and information dissemination. Analyze the role of social networks in the dissemination of information related to CBCI. Understand how information spreads within communities and influences decision making regarding insurance participation and risk reduction measures.

By addressing these research areas, scholars and practitioners can contribute to a deeper understanding of CBCI and its potential for sustainable risk mitigation in diverse contexts.

6. Conclusions

The conclusion of this study reveals several key findings related to the implementation of community-based catastrophe insurance (CBCI) in mitigating economic loss risks. Bibliometric analysis indicates a strong correlation between the authors’ country affiliations and the disaster exposure levels of their respective countries. This suggests that researchers from countries with high disaster risks, particularly developed nations, are more actively engaged in studying CBCI. This finding reinforces the notion that CBCI is highly relevant for countries frequently affected by natural catastrophes, where economic protection and mitigation strategies are urgently needed. Additionally, there is a positive trend in the growing number of CBCI-related research articles, indicating a rising academic interest in this topic.

In terms of covered topics, the study shows that some aspects of CBCI, such as risk transfer mechanisms and premium determination, have been widely discussed, whereas other topics, such as the sustainability factors of CBCI and the challenges associated with its implementation, are still relatively underexplored. This suggests that while CBCI has garnered considerable attention in the literature, several critical aspects still require further investigation.

The literature review also reveals that the CBCI approach to mitigating economic loss risks is not yet fully mature and requires further research to be effectively implemented. In comparison to traditional catastrophe insurance, CBCI offers a more sustainable approach by enabling the collective pooling of resources and risks at the community level. This not only results in lower premiums but also expands coverage, particularly for low-income households that are often excluded from traditional insurance options.

Furthermore, CBCI predominantly addresses common natural disaster risks, such as floods, earthquakes, and hurricanes, with various risk transfer methods employed through collaboration between communities, local governments, and insurance companies. Premium determination in CBCI schemes is often based on the collective risk profile of the community, making it more equitable and affordable than individual premiums in traditional insurance schemes. However, challenges to CBCI’s sustainability include regulatory issues, community engagement, and the ability of communities to maintain risk funds over the long term.

Overall, this study concludes that CBCI holds significant potential for sustainable economic loss risk mitigation, but further research is necessary to address implementation challenges and to enhance understanding of the factors that influence the success and sustainability of this insurance model.