Epsilon Archive for Student Projects

Abstract

Natural disasters are the biggest threat to forests worldwide. Between 2002 and 2013, an estimated 67 million hectares of forest burned annually worldwide. This rise is still evident throughout the first ten years of the twenty-first century. More importantly, these disruptions will most likely cause more harm over the course of the next few decades. Climate change, which influences both the frequency and intensity of disturbances, has been primarily blamed for this increase. One option available to forest owners to mitigate some of the risks associated with a natural hazard is to obtain insurance, which protects them against monetary damages.

The main goal of this study is to examine how forest fire insurance affects the net present value (NPV) of a hectare for private, independent forest owners in Sweden. This is accomplished by developing a private insurance model that takes into account the coverage amount, productive characteristics, and the likelihood of a wildfire occurring. This insurance may cover forest restoration and timber damage entirely or partially. These qualities ought to be included in the insurance policy, either directly or indirectly. In order to examine how this type of insurance influences the economic returns on forests, as measured by the net present value (NPV) of the forests, a number of ideas will be introduced and supported in the theoretical chapter. In this study, the deductive research method is applied. The process of starting with a general concept or hypothesis and working logically down to a specific conclusion is known as deduction. Using a top-down methodology, it starts with a broad theoretical framework and tests it through empirical observation. With this approach, the project hopes to generate theories-based hypotheses that can be investigated through the planning of studies and the collection and assessment of data that either confirms or refutes the theories.

The results show how the fire insurance makes the NPV stay positive due to fire and by the limitations and assumptions due to the project, the results without insurance are highly negative. The key message of this study is that insurance is a good management tool, with in mind the results without insurance.