This paper examines the impact the role that insurance and other policy tools can play in encouraging property owners to take steps to reduce losses from natural hazards such as earthquakes, floods and hurricanes and the impact that these measures will have on the solvency of insurers. The next section of the paper focuses on the demand side by developing a simple model for determining when property owners should adopt cost-effective measures and provides empirical evidence as to why most individuals do not utilize this model. Section III turns to the supply side and investigates under what conditions insurers will want to promote mitigation through premium reductions. It also explores the linkage between mitigation and insurers’ need for financial protection through reinsurance and/or capital market instruments that have recently been introduced.