Yesterday we wrote that in the wake of the tragic events in Japan, South Korea had begun to discuss the possibility of utilising catastrophe bonds to transfer its risks of natural disaster to the capital markets. Now, further articles in the Korean press suggest that they are also looking to introduce a weather risk management market to the country.
The Insurance Institute in Korea have been discussing how best to protect the country from natural disasters and weather risks. The suggestion is that a combination of risk transfer tools such as catastrophe bonds and weather risk management tools such as weather derivatives would be the best way for them to create a market which effectively hedges some of their risks such as earthquakes, typhoons, flooding and heavy rainfall.
They have already begun looking at the development of indices against which weather risk management instruments can be measured and are working with various non-life insurance companies and the Japan Meteorological Agency according to sources.
The events in Japan have forced the government in South Korea to look for a way to provide risk transfer and reinsurance against major disasters and weather events without the need for government assistance in paying claims, as the private market is the only way for them to achieve the reinsurance capacity required.