scholarly journals Natural Disaster Insurance for Sovereigns

2020 ◽  
Vol 20 (3) ◽  
Author(s):  
Aliona Cebotari ◽  
Karim Youssef
Keyword(s):  
Natural Disasters ◽  
Country Risk ◽  
Risk Exposure ◽  
Lower Income ◽  
Risk Transfer ◽  
Optimal Insurance ◽  
Disaster Insurance ◽  
Trade Offs ◽  
Ex Ante ◽  
Optimal Protection

Natural disasters are a source of economic risks in many countries, especially in smaller and lower-income states, and ex-ante preparedness is needed to manage the risks. The paper discusses sovereign experience with disaster insurance as a key instrument to mitigate the risks; proposes ways to judge the adequacy of insurance; and considers ways to enhance its use by vulnerable countries. The paper especially aims to inform policy decisions on disaster insurance. Through simulations of natural disasters and various insurance options, we find that sovereign decisions on optimal risk transfer involve balancing trade-offs between growth and debt, based on government risk preferences and country risk exposure. The choice of optimal insurance for smaller countries turns out to be more constrained by cost considerations due to their higher exposure, likely resulting in underinsurance; donor grants could help them achieve a more optimal protection. We also find that optimal insurance packages are those that are least costly relative to expected payouts (i.e. have the lowest insurance multiple), which are also the packages that insure less severe (more frequent) disasters.

scholarly journals Measuring Ex Ante Welfare in Insurance Markets

2020 ◽  
Author(s):  
Nathaniel Hendren
Keyword(s):  
Willingness To Pay ◽  
Expected Utility ◽  
Low Income ◽  
Reduced Form ◽  
Cost Curve ◽  
Optimal Insurance ◽  
Percentage Difference ◽  
Ex Ante ◽  
Information Sets ◽  
Market Surplus

Abstract The willingness to pay for insurance captures the value of insurance against only the risk that remains when choices are observed. This article develops tools to measure the ex ante expected utility impact of insurance subsidies and mandates when choices are observed after some insurable information is revealed. The approach retains the transparency of using reduced-form willingness to pay and cost curves, but it adds one additional sufficient statistic: the percentage difference in marginal utilities between insured and uninsured. I provide an approach to estimate this additional statistic that uses only the reduced-form willingness to pay curve, combined with a measure of risk aversion. I compare the approach to structural approaches that require fully specifying the choice environment and information sets of individuals. I apply the approach using existing willingness to pay and cost curve estimates from the low-income health insurance exchange in Massachusetts. Ex ante optimal insurance prices are roughly 30% lower than prices that maximize observed market surplus. While mandates reduce market surplus, the results suggest they would actually increase ex ante expected utility.

Natural disasters’ economic toll will grow in ASEAN

2017 ◽  
Keyword(s):  
Natural Disasters ◽  
Disaster Management ◽  
Low Income ◽  
Heavy Rain ◽  
Flash Floods ◽  
Low Income Countries ◽  
Content Type ◽  
Disaster Insurance ◽  
Partial Success ◽  
Severe Flooding

Significance This comes as severe flooding has again hit the region with thousands of Thais forced to flee their homes and at least 83 Vietnamese reported dead as a result of flash floods and landslides caused by heavy rain. Impacts ASEAN’s low-income countries face the highest disaster risks because they lack resources to build resilience. Reliance on member states’ voluntary commitments will hamper ASEAN’s regional disaster management. Efforts to involve business and financial sectors in disaster-proofing will have partial success due to funding gaps. Disaster-proofing will require new disaster insurance packages and housing designs and construction.

Does development reduce fatalities from natural disasters? New evidence for floods

2013 ◽  
Vol 18 (6) ◽  
pp. 649-679 ◽  
Author(s):  
Susana Ferreira ◽  
Kirk Hamilton ◽  
Jeffrey R. Vincent
Keyword(s):  
Natural Disasters ◽  
Flood Frequency ◽  
Lower Income ◽  
Flood Events ◽  
Data Set ◽  
Flood Magnitude ◽  
Lower Income Countries ◽  
The Impact ◽  
New Evidence ◽  
Large Floods

AbstractWe analyze the impact of development on flood fatalities using a new data set of 2,171 large floods in 92 countries between 1985 and 2008. Our results challenge the conventional wisdom that development results in fewer fatalities during natural disasters. Results indicating that higher income and better governance reduce fatalities during flood events do not hold up when unobserved country heterogeneity and within-country correlation of standard errors are taken into account. We find that income does have a significant, indirect effect on flood fatalities by affecting flood frequency and flood magnitude, but this effect is nonmonotonic, with net reductions in fatalities occurring only in lower income countries. We find little evidence that improved governance affects flood fatalities either directly or indirectly.

Natural disasters and the challenge of extreme events: risk management from an insurance perspective

2006 ◽  
Vol 364 (1845) ◽  
pp. 2147-2165 ◽  
Author(s):  
Anselm Smolka
Keyword(s):  
Natural Disasters ◽  
Extreme Events ◽  
Urban Areas ◽  
Volcanic Eruptions ◽  
The State ◽  
Prevention Measures ◽  
Insurance Sector ◽  
Catastrophe Bonds ◽  
Disaster Insurance ◽  
Insurance Perspective

Loss statistics for natural disasters demonstrate, also after correction for inflation, a dramatic increase of the loss burden since 1950. This increase is driven by a concentration of population and values in urban areas, the development of highly exposed coastal and valley regions, the complexity of modern societies and technologies and probably, also by the beginning consequences of global warming. This process will continue unless remedial action will be taken. Managing the risk from natural disasters starts with identification of the hazards. The next step is the evaluation of the risk, where risk is a function of hazard, exposed values or human lives and the vulnerability of the exposed objects. Probabilistic computer models have been developed for the proper assessment of risks since the late 1980s. The final steps are controlling and financing future losses. Natural disaster insurance plays a key role in this context, but also private parties and governments have to share a part of the risk. A main responsibility of governments is to formulate regulations for building construction and land use. The insurance sector and the state have to act together in order to create incentives for building and business owners to take loss prevention measures. A further challenge for the insurance sector is to transfer a portion of the risk to the capital markets, and to serve better the needs of the poor. Catastrophe bonds and microinsurance are the answer to such challenges. The mechanisms described above have been developed to cope with well-known disasters like earthquakes, windstorms and floods. They can be applied, in principle, also to less well investigated and less frequent extreme disasters: submarine slides, great volcanic eruptions, meteorite impacts and tsunamis which may arise from all these hazards. But there is an urgent need to improve the state of knowledge on these more exotic hazards in order to reduce the high uncertainty in actual risk evaluation to an acceptable level. Due to the rarity of such extreme events, specific risk prevention measures are hardly justified with exception of attempts to divert earth-orbit crossing meteorites from their dangerous path. For the industry it is particularly important to achieve full transparency as regards covered and non-covered risks and to define in a systematic manner the limits of insurability for super-disasters.

Policy Trade-Offs in Building Resilience to Natural Disasters: The Case of St. Lucia

2019 ◽  
Author(s):  
Alessandro Cantelmo ◽  
Leo Bonato ◽  
Giovanni Melina ◽  
Gonzalo E. Salinas
Keyword(s):  
Natural Disasters ◽  
Building Resilience ◽  
Trade Offs

Managing Volatility in Low-Income Countries - The Role and Potential for Contingent Financial Instruments

Policy Papers ◽  
2011 ◽  
Vol 2011 (89) ◽  
Author(s):  
Keyword(s):  
Natural Disaster ◽  
World Bank ◽  
Low Income ◽  
Commodity Price ◽  
Low Income Countries ◽  
Financial Instruments ◽  
Exogenous Shocks ◽  
Disaster Insurance ◽  
Ex Post ◽  
Ex Ante

The paper examines the case for contingent financial instruments for low-income countries (LICs), from both the market and official sector. These include commodity price hedging instruments, contingent debt instruments (commodity-linked bonds, deferred repayment loans), and natural disaster insurance, for example. The paper considers the adequacy of the existing framework of ex post and ex ante support to LICs facing exogenous shocks, and examines the need for and possible constraints to greater availability of contingent instruments. Would there be a role for the international community, particularly the IMF and World Bank, in helping to address the constraints that limit development and use of these instruments?

Debt Covenants and Corporate Governance

2019 ◽  
Vol 11 (1) ◽  
pp. 197-219 ◽  
Author(s):  
Sudheer Chava ◽  
Shunlan Fang ◽  
Praveen Kumar ◽  
Saumya Prabhat
Keyword(s):  
Empirical Studies ◽  
Empirical Literature ◽  
Future Research ◽  
Debt Covenants ◽  
Corporate Policies ◽  
Ex Post ◽  
Trade Offs ◽  
Ex Ante ◽  
The Impact ◽  
Covenant Violations

We review the recent theoretical and empirical literature on debt covenants with a particular focus on how creditor governance after covenant violations can influence the borrower's corporate policies. From the theoretical literature, we identify the key trade-offs that help explain the observed heterogeneity in covenant types, inclusion, likelihood of violation, and postviolation renegotiation flexibility. Empirically, we first review the literature that deals with ex ante evidence on covenant design and the various factors that influence covenant design; we next review the ex post evidence on the impact of technical covenant violations on the borrower. We then discuss limitations of the existing theoretical and empirical studies and conclude with some directions for future research in this burgeoning area.

scholarly journals Ready When the Big One Comes? Natural Disasters and Mass Support for Preparedness Investment

2021 ◽  
Author(s):  
Michael M. Bechtel ◽  
Massimo Mannino
Keyword(s):  
Adverse Event ◽  
Natural Disasters ◽  
Disaster Preparedness ◽  
Personal Experience ◽  
Personal Exposure ◽  
Policy Options ◽  
Ex Post ◽  
Ex Ante ◽  
Disaster Exposure

AbstractSocieties can address collective threats such as natural disasters or pandemics by investing in preparedness (ex ante) or by offering compensation after an adverse event has occurred (ex post). What explains which of these options voters prefer? We study how personal exposure and policy knowledge affect mass support for long-term disaster preparedness, a type of long-term investment meant to cope with an increasingly destructive and frequent class of events. We first assess whether support for preparedness reflects personal affectedness and find that neither subjective nor geo-coded measures of disaster exposure predict policy preferences. Second, we explore whether this finding can be explained by misperceptions about the features of the available policy options. We find that revealing the damage reductions associated with preparedness systematically reduces opposition to long-term investment. These results suggest that opposition to preparing for collective threats may depend more on informational deficiencies than on personal experience with realized risks.

scholarly journals Importance of Insurance Mechanisms in Natural Disasters' Risk Mitigation: A case study in Indiav

2021 ◽  
Author(s):  
Sangram Kishor Patel ◽  
Saradiya Mukherjee ◽  
Ankit Nanda
Keyword(s):  
Risk Management ◽  
Natural Disasters ◽  
Risk Mitigation ◽  
Management Plan ◽  
Management Tool ◽  
Indian Government ◽  
Disaster Insurance ◽  
Sustained Effort ◽  
Number Of Individuals

Introduction: This study aims to understand the dynamics of insurance as a risk management tool for natural disasters in India. It further explores different strategies and programs for disaster insurance adopted by the Indian government and highlights these initiatives' gaps. Methods: The authors conducted both offline and online desk reviews to understand the dynamics of insurance mechanisms and government strategies. They conducted a narrative review of existing literature, including peer-reviewed articles, thematic books, and government and non-governmental reports from diverse sources. Results: The review clearly shows that despite the various types of natural disasters the country faces, the coverage of disaster insurance in India remains low. It outlines the importance of insurance as a risk management tool, especially for the most vulnerable sections of society living in rural parts. The review further highlights the benefits of different government schemes and strategies while at the same time highlighting the gaps in these schemes. Conclusion: The review calls for an urgent and sustained effort to increase the number of individuals insured against natural disasters in the country by addressing the policy shortcomings and engaging with the communities and the private sector to understand their respective needs. The review also underlines the importance of creating awareness regarding disaster insurance among the wider population. Furthermore, it calls for a comprehensive disaster management plan with insurance as one of its pillars.

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