Insurance as Cornerstone for Public-Private Sector Partnerships

Society faces large challenges as to how we will deal with the increasing losses from natural, technological, and environmental hazards. Residents in hazard-prone areas are reluctant to protect themselves before the event occurs. The insurance and reinsurance industry is concerned that it cannot provide protection against these catastrophic risks without exposing itself to the danger of insolvency or significant loss of surplus. This paper explores the importance of insurance coupled with other policy instruments, such as regulations and standards, and interested parties (e.g., banks and financial institutions) to encourage loss reduction measures and provide financial protection against these hazards. New advances in information technology and risk assessment coupled with the emergence of new financial instruments for covering large losses provide the ingredients for rethinking the way society deals with catastrophic risks. To encourage investment in cost-effective loss reduction measures there is a need for well-enforced building codes as well as financial incentives such as long-term loans tied to an insurance policy.