Policy Issues in Insurance

ISSN :
1990-0821 (en ligne)
ISSN :
1990-083X (imprimé)
DOI :
10.1787/19900821
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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.

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Risk Awareness, Capital Markets and Catastrophic Risks

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Anglais
Auteur(s):
OCDE
Date de publication :
12 août 2011
Pages :
164
ISBN :
9789264046603 (PDF) ; 9789264046597 (imprimé)
DOI :
10.1787/9789264046603-en

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The OECD contributes to the improvement of the financial management of major catastrophes both through the activities of the International Network on the Financial Management of Large-Scale Catastrophes and through the leadership of its High-Level Advisory Board. This publication compiles a series of reports reflecting the OECD’s extensive work in this field over recent years. These reports include: 1) a stocktaking of initiatives to promote natural hazard awareness and disaster risk reduction education, resulting in the publication of a policy handbook; 2) a review of and recommendations on catastrophe-linked securities and the role of capital markets in supporting the financial mitigation of large-scale risks, aimed at governments promoting these instruments; 3) a review of current mechanisms used to quantify catastrophe losses within the OECD; and 4) a review of hazard risk mapping efforts in South East Asian countries.

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Ouvrir / Fermer Cacher / Voir les abstracts Table des matières

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  • Foreword
    The growing impact of major disasters on OECD and non-member economies has stimulated a demand for an in-depth evaluation of possible strategies to reduce their largescale damaging effects. Recent dramatic events, such as the earthquakes that struck China’s Sichuan Province in 2008 and both Haiti and Chile in 2010, and the major flooding that occurred in Pakistan in 2010, have brought the financial management of catastrophic risks once again to the forefront of the public policy agenda globally.
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  • Ouvrir / Fermer Cacher / Voir les abstracts Stocktaking Report on Risk Awareness and Education on Natural Catastrophes

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    • Summary
      The growing cost and frequency of natural catastrophes and their implications for economic growth and development have led to a concern over the level of public awareness and education relative to large-scale catastrophes and disaster risk reduction measures. Public awareness and education of disaster risk reduction are, in particular, increasingly acknowledged as important components of effective risk management of natural catastrophes. The financial component of disaster risk management and mitigation strategies, involving risk transfer and compensation strategies, is also recognised as being important for reducing the financial impact of catastrophes on individuals, businesses, and governments, and permitting more rapid economic and social recovery. As such, systematic promotion of public awareness and education of risks and risk reduction measures, including financial loss-sharing and risk transfer tools, is an important aspect of national and international strategies to reduce vulnerability and losses from catastrophic events.
    • Introduction
      On December 26, 2004, tens of thousands of citizens in countries surrounding the Indian Ocean, together with thousands of foreign visitors, felt the shaking of an earthquake. Many were unaware of the potential of a devastating tsunami following such seismic events. Much of the affected coastal construction was vulnerable to seismic vibration and tsunami inundation; during the preceding decades, coastal mangrove forests, which could have reduced the impact of a tsunami wave, had been systematically destroyed. At the cessation of shaking, most people did not immediately evacuate to higher ground. More than 250,000 people lost their lives in the tsunami that followed.
    • Analytical Framework
      The management of large-scale catastrophes has emerged from combined concerns of earth science, engineering, economics, civil defence, public safety and environmental protection over the past 30 years (McClure 2006; Petal 2008; Ross 1989). Whereas in the past, "natural disasters" or "natural catastrophes" were thought of as one-time occurrences caused by hydro-meteorological or geological events, they are now beginning to be recognised as the combined result of human activity and the natural environment.
    • Stocktaking
      In order to better understand the current state of risk awareness and risk reduction education worldwide as a basis for policy recommendations to support and improve these efforts, the OECD commissioned a 13-country stocktaking of risk awareness and education programs.
    • Conclusion and Next Steps
      Human decisions about where and how to live can lay the foundation for a society resilient to catastrophes. Public awareness of natural hazard risk and risk reduction measures forms the foundation and pre-requisite for effective natural catastrophic risk management and disaster risk reduction. In this vein, the Advisory Board of the International Network on the Financial Management of Large-Scale Catastrophes, set up by the OECD, has notably agreed that risk awareness initiatives constitute one of the key components of appropriate and sustainable financial management of large-scale catastrophes. This current stocktaking effort, in combination with OECD studies on financial education, builds upon national and international efforts to increase risk awareness and risk reduction education as a tool for catastrophic loss reduction.
    • Policy Recommendations for Enhancing Natural Hazard Risk Awareness and Risk Reduction Education
      The international consensus around the Hyogo Framework for Action, global efforts such as the new International Decade for Education for Sustainable Development, risk reduction research, the OECD project on enhanced risk awareness and the OECD International Network on the Financial Management of Large-Scale Catastrophes all point to the imperative need for enhancing natural hazard risk awareness and risk reduction education in the general population.
    • Selected Examples of Risk Awareness and Reduction Education Programmes
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  • Ouvrir / Fermer Cacher / Voir les abstracts Catastrophe-Linked Securities and Capital Markets

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    • Summary
      Catastrophe-linked ("CAT-linked") securities provide a mechanism for the transfer of catastrophe risks to capital markets, and may provide an additional layer of protection to traditional insurance and reinsurance arrangements or serve to reduce reliance on these arrangements by permitting direct access to capital markets for the coverage of catastrophe risks. CAT-linked securities may also create opportunities for the transfer of catastrophe risks that are currently not covered by insurance markets, thus potentially broadening the overall financial coverage of such risks.
    • Introduction
      Catastrophe-linked ("CAT-linked") securities provide a mechanism for the transfer of catastrophe risks to capital markets, and may provide an additional layer of protection to traditional insurance and reinsurance arrangements or serve to reduce reliance on these arrangements. CAT-linked securities may also create opportunities for the transfer of catastrophe risks that are currently not covered by insurance markets, thus potentially broadening the overall financial coverage of such risks.
    • Catastrophe Risks and the Role of Capital Markets
      Insurance markets provide the means for individuals and organisations to transfer the risks of loss to insurers who pool the pure risks and, via the law of large numbers, make the unit loss more certain and the distribution less risky. The law of large numbers relies, however, on the independence of risks in the pool. Some perils (e.g., earthquake, flooding) in some countries abrogate that independence because the spatial correlation of risks diminishes the effectiveness of domestic insurers’ geographic diversification. While reinsurance does allow direct insurers to transfer risk to entities with a more geographically diversified pool of risks, reinsurance capacity is finite and any onward retrocession1 simply chases a diminishing capital capacity.
    • Overview and Analysis of CAT-linked Securities
    • Development of CAT-linked Securities
      We can draw from observations made in chapter six of this report about the nature of natural catastrophe risks and their economic costs, the general conditions for market growth and liquidity in securitised markets and the possible roles of CAT-linked securities, to identify the key drivers of, impediments to, and issues in the development of, a CAT-linked securities market.
    • Recommendations for Policy Makers
      Based on the analysis in this report, and to the extent that they believe that the growth in CAT-linked securities markets should be encouraged, governments should consider acting, individually and collectively, on the following set of recommendations, namely...
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