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Enhancing Financial Protection Against Catastrophe Risks: The Role of Catastrophe Risk Insurance Programmes

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The financial management of catastrophe risks presents an important public policy challenge for governments across the world. Climate change, the increasing reliance on digital technologies and socioeconomic trends such as globalisation and urbanisation are affecting the frequency and severity of the floods, cyclones, cyber-attacks and infectious disease outbreaks that produce significant financial, economic and social costs each year. In 2017, the OECD Council adopted a Recommendation on Disaster Risk Financing Strategies that provides guidance on the development of strategies for the financial management of disaster risks. The Recommendation provides a set of high-level recommendations for designing a strategy for addressing the financial impacts of disasters on individuals, businesses and subnational levels of governments, as well as the implications for public finances.

Insurance and other forms of financial protection can make a significant contribution to reducing financial vulnerability and supporting economic recovery – although the challenges posed by risks with catastrophic potential has impeded this contribution for a number of catastrophe perils and in some countries. This report examines the role of catastrophe risk insurance programmes (i.e. loss-sharing arrangements within the insurance sector and often in partnership with governments) in broadening the availability of affordable insurance coverage for catastrophe risks and limiting risks to public finances. These programmes play a significant role in addressing some of the challenges to private sector insurability of natural catastrophe and terrorism risks in many countries – and could potentially play a role in responding to the insurability challenges for other perils such as large-scale cyber-attacks and pandemics.

This report was prepared by the OECD Insurance and Private Pensions Committee and benefited from the support and input of the OECD High-Level Advisory Board on the Financial Management of Catastrophic Risk as well as from members of the World Forum of Catastrophe Programmes and the International Forum of Terrorism Risk (Re)Insurance Programmes. The analysis also benefitted from data on economic and insured catastrophe losses provided to the OECD by Swiss Re and PCS.