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
Environmental Risks and Insurance

Environmental Risks and Insurance

A Comparative Analysis of the Role of Insurance in the Management of Environment-Related Risks You do not have access to this content

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31 Oct 2003
9789264105522 (PDF) ;9789264105508(print)

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From the increasing incidence of environmental pollution and soil contamination, to recurring natural disasters, the risks posed by the constant interaction between human activities and the environment are diverse, manifold and often catastrophic in their consequences. Therefore, the elaboration of effective risk-management plans, aimed at formulating viable response strategies, requires the contribution of all the economic actors involved: private parties, financial institutions, governments and international organizations.

This report focuses on the role of insurance and reinsurance companies in the management of environmental risks - environmental pollution risk and natural catastrophe risk in particular.

It discusses the issue of insurability of such risks, analyses the increasing risk of liability for environmental pollution and the underlying trends in the development of environmental liability regimes in OECD countries. It also presents an overview of the various environmental pollution insurance products and techniques developed in response to legal and factual evolutions. In addition, it describes the special features of natural catastrophe risks, the role of traditional insurance markets in the coverage of such perils, and alternative options of coverage, from governmental disaster schemes to new financial market instruments.

Also available in French, Spanish
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  • Introduction

    In the recent times, the complex relationship between human activities and the environment has become a major public concern, raising issues of legal, political and economic relevance.The adverse impact of industrial activities on natural resources and biodiversity, as well as the need for sustainable development, stimulated a debate on appropriate policies and techniques aimed at improving the current level of environmental protection and preservation. Conversely, a growing concern has developed over the effects of such extreme natural events as hurricanes, typhoons, floods and earthquakes which pose a serious threat to human life and property, being able to disrupt local communities and to affect the economic stability and growth of entire nations...

  • Risk, Information and Insurance

    After a brief overview of the traditional functioning of the insurance and reinsurance mechanisms, this chapter introduces the general issue of insurability of environment-related risks. It describes the different types of attitudes towards risks and provides a synthesis of the criteria of insurability, which could be summed up under the following headings: assessibility, randomness, mutuality and economic feasibility. Against this backdrop, it is argued that two major factors influence in practice the provision of insurance policies for a particular risk: generalized uncertainty, which largely depends on the legal framework, and informational asymmetries, which may lead to adverse selection and moral hazard problems. As underlined by the author, the assessment of these two factors is of paramount importance in order to establish appropriate insurance mechanisms to cover environment risks....

  • Environmental Pollution Risk and Insurance

    This chapter focuses on the management of risks related to environmental pollution. Insurability of such risks is tightly connected with the underlying legal and regulatory framework. The author analyses different legal approaches to environmental risks and liability, sketches out the experiences of various OECD countries in this field, and describes recent EU developments. He also examines the factual and legal uncertainty stemming out of the complex and potentially long-tail consequences of environmental pollution. The chapter then provides an overview of the new products and techniques designed by the insurance industry to respond to induced insurability problems, and underlines the various potential roles to be played by insurers in the management of environmental pollution risks. Finally, the author raises the issue of the slow development of the insurance market for environmental pollution risks and appraises different solutions to overcome this problem, among which a compulsory insurance coverage or the development of alternative financial guarantees...

  • Natural Catastrophe Risk and Insurance

    This final chapter is devoted to the analysis of the role of insurance in the management of natural catastrophe risk. The author underlines the role of insurers as well as the limits of private insurance solutions for the coverage of such extreme risks, due to the magnitude of their economic consequences and the difficulties faced in pooling risks. He also gives an overview of complementary or alternative risk management options already tested in different institutional contexts and analyses the crucial role played by governments in partnerships with the private sector. Besides he describes the main features of several governmental disaster schemes and other institutional arrangements that have been designed in order to supplement or replace traditional reinsurance and provide regulatory incentives for the development of private coverage. The overview of alternative risk management techniques also includes an analysis of the development of new financial instruments (e.g. catastrophe bonds or weather derivatives) aimed at providing additional funding and economic protection against large losses from natural disasters...

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