Policy Issues in Insurance

1990-0821 (online)
1990-083X (print)
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This series addresses major concerns of economic, political and social actors in the insurance sector, and covers a wide scope of regulatory and supervisory issues, such as: investment regulation, solvency assessment, management of insolvency, insurance contract law, mandatory insurance, reinsurance, taxation of insurance products, accountability, convergence in the financial services industry, policy holder protection.

Also available in French
Catastrophic Risks and Insurance

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06 July 2005
9789264009950 (PDF) ;9789264009943(print)

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These proceedings, based on a conference held in November 2004 at OECD in Paris, present leading academic analysis as well as government and private sector information and experience-sharing on how governments and the financial and insurance sectors can deal with losses caused by terrorism, atmosperic perils, and other large-scale risks.

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  • Some Aspects of the Economics of Catastrophe Risk Insurance
    The ability to share risk efficiently in the economy is essential to welfare and growth. However, the increased frequency of natural catastrophes over the last decade has raised once again questions associated to the limits of insurability in a free markets economy, and to the relevance of public interventions on risk-sharing markets.
  • Industrial, Technological and Other Catastrophes
    An international reinsurer must be credited with a certain degree of experience with catastrophes. But the question is, given the individual profile and diversity of the scenarios, how far can he meaningfully "process" such experience?
  • Recent Trends in the Catastrophic Risk Insurance / Reinsurance Market
    Over the last years the insurance and reinsurance markets have been deeply affected by a series of non-correlated factors: the aftermath of the World Trade Center terrorist attacks, the increasing frequency and severity of natural disasters, major disruptions in financial markets and concerns related to liability uncertainty.
  • Insurance of Atmospheric Perils – Challenges Ahead
    The (re)insurance of damage caused by weather related risks has a long history and is well established in all mature insurance markets. A fundamental characteristic of atmospheric perils like hurricanes or European winter storms is their potential for extreme event loss accumulations.
  • National Security and Compensation Policy for Terrorism Losses
    Much research and policy on terrorism insurance compares terrorism to natural catastrophes, but this obscures the national security dimension of terrorism insurance. In this chapter, it is argued that government support of terrorism insurance and compensation can impact national security in several ways.
  • Current State of the Coverage for War and Terrorism Risks in the Aviation Sector
    The aftermath of the 11th September events has deeply affected the aviation insurance market, requiring government intervention at least in a recovery period. Immediately after the events, insurance companies cancelled policies with war risk covers and introduced exclusions clauses for war risks in new contracts or/and limited damage claims to a maximum of US$50m.
  • Terrorism Insurance
    This chapter provides an overview of the scope and evolution of the market and capacity for terrorism risk insurance before and after 9/11 events. It also examines the coverage currently available for this risk, the practical and theoretical advantages of such a private cover and its prospects.
  • Current Challenges in the Securitization of Terrorism Risk
    The successful securitization of terrorism risk, pioneered in October 2003 through Golden Goal Finance Ltd., suggests that the catastrophe bond market may yet be expanded through innovation, enterprise, and industry on the part of investment bankers, lawyers, and risk analysts.
  • Financing Disaster Risks in Developing and Emerging Economy Countries
    This chapter examines the experience, opportunities and drawbacks of risk financing, particularly through financial market instruments, for reducing the vulnerability of developing and emerging-economy countries to sudden-onset, natural disasters.
  • The Potential for New Derivatives Instruments to Cover Terrorism Risks
    This chapter begins by a brief overview of the credit derivatives market and the structures of credit default swaps (which are highly relevant to our discussion of catastrophe-linked derivatives). It then looks at catastrophe-linked derivatives and two ideas for new instruments to cover terrorism risk—catastrophe risk swaps and swaptions—and some of the challenges and advantages to the development of these products.
  • Catastrophic Risk Securitization
    Catastrophe bonds ("cat bonds") are structured finance instruments devised to transfer catastrophe risk to the capital markets. The bonds appeal both to sponsors and investors, and provide a general economic benefit as well, in that they help to distribute some of the financial risk associated with insurance payouts on major disasters.
  • Comparative Analysis of Large Scale Catastrophe Compensation Schemes
    This chapter first compares the large-scale compensation scheme of sixteen OECD countries. The role of the private market and governments in coping with the catastrophe losses is then described. Three groupings of the varied government programs are made based on whether the government primarily acts as insurer, reinsurer or underwriter of catastrophe risk.
  • Rapid Onset Natural Disasters
    This chapter provides a conceptual framework for designing a comprehensive risk management strategy for rapid onset natural disasters at the country level, with a particular emphasis on the role of catastrophe loss funding.
  • Designing a Disaster Insurance Pool
    The Hungarian and Turkish governments have recently implemented national insurance systems to transfer risks from floods and earthquakes, respectively, from households to public insurance pools. To date, neither system has met the expectations of the respective governments in terms of insurance uptake and political support.
  • The French Experience in the Management and Compensation of Large Scale Disasters

    Risks like natural perils and terrorism are unpredictable and can cause severe damage undermining the solvability of a company. The insurance marketplace avoids accepting to cover these risks, sticking to the safer territory of insurable risks.

  • Disaster Risk Management in Japan
    Japan is a particularly exposed country in respect of earthquakes, tsunamis and volcanic eruptions. In order to address these potentially catastrophic risks, which often lead to disastrous human and economic losses in Japan, the government first established in 1966 the Earthquake Insurance System backed by the State Budget.
  • Natural Disasters Fund (FONDEN)
    The Natural Disasters Fund (FONDEN) was created in 1996 at the national level in order to increase Mexican Federal Government’s resources and means to better cover damages arising from natural disasters.
  • The Spanish Experience in the Management of Extraordinary Risks, Including Terrorism
    In December 1954, the ‘Consorcio’ became the masterpiece in one of the oldest State backed systems dealing with Extraordinary Risk Cover, terms that in this system include perils of nature (flood, earthquake, volcanic eruption, storms) and socio-political risks, essentially terrorism. This chapter provides an overview of the Consorcio and its main reforms.
  • The Turkish Catastrophe Insurance Pool TCIP and Compulsory Earthquake Insurance Scheme
    The introduction of the Turkish Catastrophe Insurance Pool (TCIP), in 2000, provides a reliable method for compensation to homeowners in Turkey without reverting to government budget, social solidarity and risk sharing are effectively maintained through payments of affordable insurance premiums.
  • Natural Disasters and Disaster Relief Policy in China
    China’s disaster prevention, disaster resistance and disaster relief system as well as its social mobilizing system have generally played a crucial role to cope with the losses arising from natural disasters. These systems have effectively eased the damage caused by natural disasters, guaranteed the basic living of people in disaster areas and also maintained the social stability together with the economic development.
  • Disaster Management in India

    India is highly vulnerable to natural disasters. About 60% of the landmass is prone to earthquakes; over 40 million hectares is prone to floods; about 8% of the total area is prone to cyclones and 68% of the area is susceptible to drought.

  • Management of Extraordinary Risks Including Terrorism, in India Achievements and Perspectives
    This chapter provides an analysis of the respective role of the government, at both local and national levels, of the insurance and reinsurance markets particularly through the establishment of pools and of other financing alternatives to cover natural and man-made disasters in India.
  • Earthquake Risk Management Policy in Indonesia
    Indonesia is located at the convergence of three major tectonic plates, namely the Eurasian, the Indo-Australian and the Pacific plates. This situation generates thousands of earthquakes every year, most of which are potentially destructive.
  • Disaster Risk Management Policy in the Philippines
    This chapter first highlights the particular risk-exposure of the Philippines to disasters and calamities. It then provides an overview of the Philippine Disaster Management System, of the comprehensive emergency management framework and of the funding mechanism of these disaster management programs. It also presents a project for a risk transfer scheme to cope with natural disasters.
  • Annex 1
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