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Insurance and Expanding Systemic Risks

image of Insurance and Expanding Systemic Risks

This comprehensive study responds to the growing concerns of economic, financial, political and social actors regarding the ever increasing exposure to new expanding risks. These risks are particularly related to natural disaster/environment pollution, technology, health and terrorism. For insurers the difficulty is encountered in adequately appraising and covering the potential liability stemming from these risks. It also sketches out some policy recommendations for decision makers in governments and in the business community on how to limit, prevent and manage such risks. In this perspective it will constitute a unique reference work for the attention of both OECD countries and emerging economies.

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The Role of Government

In this study we outlined various ways in which insurers can cope with newly emerging systemic risks, but indicated at the same time that there may also be limits. Emerging risks may be expanding to such an extent that the limits of insurability may be exceeded. Therefore, new financing techniques and alternative compensation mechanisms other than insurance (or within insurance schemes) were examined. However, we equally made clear that even these alternatives, which were discussed in Chapter 5, may have their limits as well. A question which therefore has to be addressed is what the much debated role of government should be in the regulation of systemic risks, and, more particularly, whether the government should intervene to provide for compensation if insurance and financial markets are not capable of covering risks. This may very well happen in the case of catastrophic risks. One only has to think of terrorist attacks...

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