The present vulnerability of regions, communities and activities, to changes in the frequency, intensity and distribution of extreme meteorological conditions presents a problem that may be complicated by climate change. Society has many different ways of responding to catastrophic risks and distributing the financial losses. This paper contrasts different approaches on grounds of efficiency and equity. The main focus is on securitization: a new mechanism for spreading risks that is of interest to insurance companies to assure the supply of adequate financial capacity, and also to governments as the insurers of last resort. The 1997 flood in Poland that amounted to a cost of 3% of GDP is analyzed, and securitization is proposed as a possible alternative to traditional insurance for ex ante coverage of the risk.
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Paper provided by International Institute for Applied Systems Analysis in its series Working Papers with number
ir98098.
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