The Development of New Catastrophe Risk Markets
AbstractThe large-scale disasters that have occurred since 2001 suggest that we have entered a new era of catastrophes. We are more vulnerable to extreme events as a result of the increasing concentration of population and activities in exposed areas of the country. The question is not whether large-scale catastrophe will occur, but when and how frequently they will strike. One key question is, Who will pay for the economic losses future disasters will inflict? This paper discusses how new catastrophe risk markets can be developed to provide the necessary financial coverage to make our country more resilient. We look specifically at insurance-linked financial instruments to complement traditional insurance and reinsurance. We also propose the development of long-term insurance and long-term loans to overcome behavioral biases such as myopia and misperception of risks. The paper concludes by proposing risk management strategies that apply to other extreme events such as the financial crisis of 2008–2009.
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Bibliographic InfoArticle provided by Annual Reviews in its journal Annual Review of Resource Economics.
Volume (Year): 1 (2009)
Issue (Month): 1 (09)
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Find related papers by JEL classification:
- G01 - Financial Economics - - General - - - Financial Crises
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
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