Regulator in Chile considering catastrophe bonds and microinsurance

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Chile is a country extremely prone to earthquakes, as evidenced by the 8.9 magnitude quake which devastated areas of the country in February this year. You would be forgiven for thinking that as a country plagued by earthquakes it would have a robust risk management and insurance culture. It doesn’t, but talks are beginning to take place which could see that improve.

It’s being reported by various sources that the Chilean regulator of insurance and securities (Superintendencia de Valores y Seguros) is now considering using alternative risk transfer methods such as issuing a catastrophe bond to fund its earthquake and catastrophe insurance needs. Head of the regulator Fernando Coloma, told a recent audience, that as well as discussing cat bonds the regulator are considering ways to bring lower premium earthquake insurance policies to Chile through microinsurance means.

Next year the regulator will carry out a study to develop a model of earthquake risk in Chile and then will assess insurers reserves and ability to pay claims should major quakes occur.

It sounds like Chile really needs both of these things. Catastrophe bond structures would insure the government and insurers themselves so that there is money available to pay claims. Microinsurance products for the public would ensure affordable and predictable earthquake cover was available to even poorer segments of the Chilean community and if index-based in some manner would allow for quick payouts.

Chile already uses microinsurance products for some of the farming community.

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