OECD says prepare better for disaster; use cat bonds

The Organisation for Economic Development (OECD) has renewed it’s call for governments around the world to adopt the issuance of catastrophe bond structures to help better prepare them for natural disasters. In a report released yesterday, produced by the OECD, Swiss Re and Oliver Wyman, the OECD suggested that governments need to co-ordinate with each other and private insurers to ensure disasters are dealt with swiftly and cost-effectively.

Catastrophe bonds, the report suggests, would be beneficial as they pay out swiftly based on the actual severity of a disaster and can be utilised where private insurance is too expensive or difficult to arrange. That equals a great way for governments to cover poorer areas of the world from the kinds of disasters which hinder their development. They also suggest that favourable tax treatment for insurance reserves put into catastrophe pools could help to boost supply of private insurance.

It’s great to see issues around natural disaster in the poorer nations of the world being taken seriously, it remains to be seen whether government sponsored cat bonds, insurance pools or the micro-financing approach of other private insurers becomes the answer (most likely a mix of all three). The capital markets has definitely got a part to play.

You can download the full OECD report here (in Adobe PDF format).

As an aside, in other OECD news, AIR Worldwide has announced their involvement as sponsors of the Global Earthquake Model, a project led by the OECD. This initiative aims to generate quake models of the highest accuracy through cooperation between the world’s top researchers and risk modellers. More details on this story here.