Insurance industry think tank, the Geneva Association (GA), in partnership with the International Development Forum (IDF), has released guidelines in support of sovereign risk financing and transfer, providing governments around the world with vital risk assessment frameworks.
The new paper, Guidelines for Risk Assessment to Support Sovereign Risk Financing and Risk Transfer, offers governments in all parts of the world with valuable guidelines for undertaking risk assessment that is fundamental to national risk transfer programmes.
The report explains that for risk transfer programmes to be effective, they require an accurate and comprehensive view and understanding of the risk context, which includes the possible impacts of both man-made and natural disasters on individuals, infrastructure and the economy.
Director of the Extreme Events and Climate Risk research programme of the Geneva Association, Dr. Maryam Golnaraghi, commented; “There is growing evidence that countries with widespread market-based disaster insurance coverage do recover faster from the financial impacts of extreme events.
“While the benefits of risk transfer tools such as insurance are increasingly recognised globally, there is still a large and in some places growing protection gap, indicating that the opportunities and benefits of risk transfer mechanisms are not harnessed to their full potential. This guideline, which will be distributed by the UN to national governments, is a step towards addressing such gap.”
The report urges governments to work with private sector entities from the insurance and reinsurance sector, as well as data providers and risk modelling companies to adequately quantify the risks.
As global organisations continue to push for increased disaster resilience across the world, particularly in emerging and more vulnerable regions, the role of risk transfer has been highlighted as an extremely important part of the solution.
While traditional insurance and reinsurance can provide capacity, knowledge, understanding, and expertise, there’s also a role for the expanding alternative reinsurance capital space to participate in the same way, as well as by bringing innovative and effective structures to the table.
Both catastrophe bonds and parametric solutions are mentioned in the report, as they have been numerous times during discussions by organisations such as the IDF and the Geneva Association, as well as the World Bank, that surround risk transfer, financing and resilience.
The report highlights national pools, such as Mexico’s Fund for Natural Disaster (FONDEN) and the Turkish Catastrophe Insurance Pool (TCIP), as well as regional pools such as the CCRIF SPC and the African Risk Capacity (ARC), all of which utilise parametric insurance, and some of which have issued catastrophe bonds or collateralised reinsurance to support their programmes.
Such protection has the potential to be scaled up, ultimately providing more and more people with access to affordable and effective insurance protection, while providing governments with financial assistance that is greatly needed when disaster strikes.
IDF Chairman, Stephen Catlin, said; “Extreme events often have devastating effects, particularly in low-income countries, hindering economic development and poverty reduction efforts. The insurance sector is fully committed to working with governments, civil society and international institutions to build greater resilience and protection for people and communities that are increasingly vulnerable to natural disasters and their associated economic impacts.”