Description: Sovereign Natural Disaster Insurance for Developing Countries : A Paradigm Shift in Catastrophe Risk Financing

Sovereign Natural Disaster Insurance for Developing Countries : A Paradigm Shift in Catastrophe Risk Financing

Economic theory suggests that countries should ignore uncertainty for public investment and behave as if indifferent to risk because they can pool risks to a much greater extent than private investors can. This paper discusses the general economic...

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Bibliographic Details
Main Authors:	Ghesquiere, Francis, Mahul, Olivier
Language:	English
Published:	World Bank, Washington, DC 2012
Subjects:	ACCESS TO INSURANCE AGENTS AMOUNT OF RISK APPLICATIONS ASSET CLASS ASSET CLASSIFICATION AVALANCHES BALANCE SHEET BALANCE SHEETS BANK LOAN BANK POLICY BASIS POINT BOND BOND ISSUER BOND ISSUES BOND MARKET BONDS BORROWING CAPACITY BUSINESS INTERRUPTION INSURANCE CALL OPTION CAPITAL MARKET CAPITAL MARKETS CASH FLOW CASH FLOWS CASH PAYMENT CATASTROPHE BOND CATASTROPHE BONDS CATASTROPHES CATASTROPHIC EVENT CATASTROPHIC EVENTS CATASTROPHIC INSURANCE CATASTROPHIC LOSSES CATASTROPHIC RISKS CLAIM PAYMENT COMMERCIAL DEBT CONTINGENT DEBT CONTINGENT DEBTS COST OF CAPITAL COUNTRY RISK COVERAGE CREDIT LINE CREDIT LINES CREDIT RISK CREDITORS DAMAGE ASSESSMENT DAMAGES DEBT BURDEN DEBT OBLIGATIONS DEBT RESTRUCTURING DEBT SERVICE DEBT SERVICES DERIVATIVE DERIVATIVE TRANSACTION DEVASTATION DEVELOPING COUNTRIES DISASTER EVENT DISASTER INSURANCE DISASTER PRONE COUNTRIES DISASTER RECONSTRUCTION DISASTER RECOVERY DISASTER RISK DISASTER RISKS DISASTER SITUATION DISBURSEMENTS DISCOUNT RATE DIVERSIFIED PORTFOLIO DOMESTIC CREDIT DOMESTIC DEBT EARTHQUAKE EARTHQUAKES ECONOMIC RISK EMERGENCY ASSISTANCE EMERGENCY NEEDS EMERGENCY RECOVERY EMERGENCY RESPONSE EMERGING MARKET EMERGING MARKET COUNTRIES EXCISE TAXES EXPENDITURE EXPENDITURES EXTERNAL DEBT EXTERNALITIES FEDERAL RESERVE FEDERAL RESERVE BANK FINANCES FINANCIAL INSTRUMENT FINANCIAL INSTRUMENTS FINANCIAL MARKETS FINANCIAL SUPPORT FIRE FISCAL POLICIES FLOODING FLOODS GOVERNMENT ASSETS GOVERNMENT BUDGET GOVERNMENT CAPACITY GOVERNMENT DEFICIT GOVERNMENT REVENUE GROSS DOMESTIC PRODUCT HOLDING HOUSING HURRICANE HURRICANES IMPACT OF DISASTER INDEBTEDNESS INDEMNITY INDEMNITY INSURANCE INFRASTRUCTURE LOANS INSTITUTIONAL INVESTORS INSTRUMENT INSURANCE INSURANCE CLAIMS INSURANCE COVERAGE INSURANCE INDUSTRY INSURANCE MARKET INSURANCE MARKETS INSURANCE PENETRATION INSURANCE POLICY INSURANCE PREMIUM INSURANCE PREMIUMS INSURANCE PRODUCTS INSURED LOSSES INSURERS INTERNATIONAL BANK INTERNATIONAL CREDIT INTERNATIONAL FINANCIAL MARKETS INVENTORY LANDSLIDES LEGISLATION LEVEL OF DEBT LEVY LINES OF CREDIT LIQUIDITY LIQUIDITY CONSTRAINT LIQUIDITY CONSTRAINTS LIQUIDITY CRISIS LOAN LOAN COMMITMENTS LOCAL BUSINESSES LONG-TERM RESOURCE MACROECONOMIC RISK MARKET INSTRUMENTS MATURITY MORAL HAZARD MUNICIPALITIES NATURAL DISASTER NATURAL DISASTERS NATURAL HAZARDS NEUTRALITY OPPORTUNITY COST OPPORTUNITY COSTS PLEDGES PORTFOLIO PRESENT VALUE PRINCIPAL PAYMENTS PRIVATE CAPITAL PRIVATE INVESTMENTS PRIVATE INVESTORS PROGRAMS PUBLIC ASSETS PUBLIC EXPENDITURES PUBLIC FINANCES PUBLIC INVESTMENT PUBLIC INVESTMENTS PUT OPTIONS RECAPITALIZATION RECOVERY OPERATION RECOVERY OPERATIONS REINSURANCE REINSURANCE CAPACITY REINSURANCE COMPANIES REINSURANCE MARKETS REINSURERS RELIEF RELIEF EFFORTS RELIEF OPERATION RELIEF OPERATIONS REPAYMENT REPAYMENT OF PRINCIPAL RESERVE RESERVE FUND RESERVE FUNDS RESERVES RETURN RETURNS RISK ASSESSMENT RISK AVERSION RISK CAPITAL RISK DIVERSIFICATION RISK EXPOSURE RISK INSURANCE RISK MANAGEMENT RISK MITIGATION RISK NEUTRAL RISK PREMIUM RISK PROFILE RISK REDUCTION RISK TRANSFER SAFETY SAFETY NET SAFETY NETS SECURITIES SETTLEMENT SHORT-TERM LIQUIDITY SMALL BUSINESS SUB-NATIONAL ENTITIES SWAP SYSTEMIC RISK TAX TAX ADMINISTRATION TAXATION TERM STRUCTURE OF INTEREST RATES TIDAL WAVES TOTAL DEBT TOURISM TAXES TRANSACTION TRANSACTION COSTS TRANSPORT TREASURY TREASURY BONDS TROPICAL STORMS UNDERLYING ASSET VOLCANIC ERUPTION VOLCANIC ERUPTIONS WEALTH EFFECT WESTERN EUROPE WIND SPEED
Online Access:	http://documents.worldbank.org/curated/en/2007/09/8268122/sovereign-natural-disaster-insurance-developing-countries-paradigm-shift-catastrophe-risk-financing http://hdl.handle.net/10986/7331

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Summary:	Economic theory suggests that countries should ignore uncertainty for public investment and behave as if indifferent to risk because they can pool risks to a much greater extent than private investors can. This paper discusses the general economic theory in the case of developing countries. The analysis identifies several cases where the government's risk-neutral assumption does not hold, thus making rational the use of ex ante risk financing instruments, including sovereign insurance. The paper discusses the optimal level of sovereign insurance. It argues that, because sovereign insurance is usually more expensive than post-disaster financing, it should mainly cover immediate needs, while long-term expenditures should be financed through post-disaster financing (including ex post borrowing and tax increases). In other words, sovereign insurance should not aim at financing the long-term resource gap, but only the short-term liquidity need.

Sovereign Natural Disaster Insurance for Developing Countries : A Paradigm Shift in Catastrophe Risk Financing

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