OECD Working Papers on Finance, Insurance and Private Pensions

Selected studies on finance, insurance and private pensions policy prepared for dissemination in order to stimulate wider discussion and further analysis and obtain feedback from interested audiences. The studies provide timely analysis and background on industry developments, structural issues, and public policy in the financial sector. Topics include risk management, governance, investments, benefit protection, and financial education. Previous papers addressing these policy issues are available via http://dx.doi.org/10.1787/19936397.


Designing Optimal Risk Mitigation and Risk Transfer Mechanisms to Improve the Management of Earthquake Risk in Chile

The property losses from the Feb 27th 2010 Maule earthquake are assessed as $18.1Bn paid for 38% by insurers, 47% by the Government of Chile and 15% by individuals and businesses. Including $4Bn damage to infrastructure and the costs of lost economic activity the total loss in 2010 values is estimated to have been close to $28Bn. The report considers policy options for expanding the proportion of future Chilean earthquake losses that would be covered via new and expanded risk transfer mechanisms: for low income homeowners, small commercial enterprises and government buildings. Consideration is also given to how the overall levels of earthquake risk in Chile could be reduced through targeted efforts at risk mitigation. Recommendations are made for how the insurance industry and government in Chile should expand the use of probabilistic catastrophe loss models for defining and pricing risk management options.


Keywords: Catastrophe risk securitization, risk financing, risk mitigation, Catastrophe model, Microinsurance, catastrophe insurance
JEL: H54: Public Economics / National Government Expenditures and Related Policies / National Government Expenditures and Related Policies: Infrastructures; Other Public Investment and Capital Stock; C63: Mathematical and Quantitative Methods / Mathematical Methods; Programming Models; Mathematical and Simulation Modeling / Computational Techniques; Simulation Modeling; H12: Public Economics / Structure and Scope of Government / Crisis Management; G22: Financial Economics / Financial Institutions and Services / Insurance; Insurance Companies; Actuarial Studies
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