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Managing unknown risks: the future of global reinsurance

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  • Chichilnisky, Graciela
  • Heal, Geoffrey

Abstract

It has been said that insurance is the last of the financial services to accept radical change (Denney [1995-1996]). Yet there has been a fundamental shift in the geographic location and in the organization of the reinsurance industry in the last six years (Chichilnisky [19966]). Global environmental risks are partly responsible for this change; increased weather volatility and catastrophic risks are difficult to diversify using traditional insurance practices. To provide a map to the future, we need a realistic appraisal of how we got where we are. This is the story of how humans have hedged risks. There are two basic and distinct approaches: statistical and economic. The former is typical of the insurance industry; the latter typifies the securities industry. Both are needed to manage today's catastrophic risks. Neither alone will do. We show how a combination of both leads to efficient outcomes, and is the way to the future (Chichilnisky [1996a, 1996b, 1996d]).

Suggested Citation

  • Chichilnisky, Graciela & Heal, Geoffrey, 1998. "Managing unknown risks: the future of global reinsurance," MPRA Paper 8820, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:8820
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    File URL: https://mpra.ub.uni-muenchen.de/8820/1/MPRA_paper_8820.pdf
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    References listed on IDEAS

    as
    1. Cass, David & Chichilnisky, Graciela & Wu, Ho-Mou, 1996. "Individual Risk and Mutual Insurance," Econometrica, Econometric Society, vol. 64(2), pages 333-341, March.
    2. Chichilnisky, G. & Heal, G., 1992. "Financial Markets for Unknown Risks," Papers 92-31, Columbia - Graduate School of Business.
    3. Chichilnisky, Graciela, 1996. "Markets with endogenous uncertainty: theory and policy," MPRA Paper 8612, University Library of Munich, Germany.
    4. Chichilnisky, Graciela, 1998. "A Radical Shift in Managing Risks: Practical Applications of Complexity Theory," MPRA Paper 7881, University Library of Munich, Germany.
    5. Chichilnisky, Graciela, 1996. "Financial Innovation in Property Catastrophe Reinsurance: The Convergence of Insurance and Capital Markets," MPRA Paper 8333, University Library of Munich, Germany.
    6. Graciela Chichilnisky & Geoffrey Heal, 1993. "Global Environmental Risks," Journal of Economic Perspectives, American Economic Association, vol. 7(4), pages 65-86, Fall.
    7. Heal, G., 1998. "Markets and Sustainability," Papers 98-02, Columbia - Graduate School of Business.
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    Cited by:

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    More about this item

    Keywords

    insurance; risk; global finance; environment; catastrophe bundles; climate change;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects

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