Public-private initiatives to cover extreme events

The impressive series of extreme events occurred in 2011 and their relevant economic impact brought the financial management of catastrophic risks once again in the forefront of the policy agenda of governments in several countries. These dramatic events constituted at the same time a test of the effectiveness and reliability of the existing prevention, protection and compensation mechanisms already in place, and the occasion to evaluate the opportunity to develop more structured and comprehensive strategies going forward. On 16 December 2010, the OECD Council issued a recommendation on Good Practices for Mitigating and Financing Catastrophic Risks, stating that governments should promote the development of efficient strategies for coping with large-scale catastrophes and that such strategies should be anchored in an integrated framework of risk assessment, risk perception, risk management and disaster response. OECD countries’ policies in the field of financial management of large-scale disaster risks are mainly aimed to reduce the negative impact of disaster losses on the population and the economy, and to facilitate and improve relief, rehabilitation and reconstruction efforts. Shared policy objectives in this area expressly include the enhancement of disaster risk prevention, reduction, mitigation and response strategies, and the reduction of government exposure to catastrophe risk by means of public-private cooperation schemes involving the insurance and reinsurance sectors. To implement such policies and to achieve the stated objectives, OECD countries have employed a wide array of different policy tools and have pursued different strategies. Based on OECD countries’ experiences and in line with the internationally recommended good practices, this paper is aimed at providing an analytical framework for the discussion of the different public-private disaster insurance schemes implemented across the world. To this end, this paper identifies and reviews the most significant features of different policy approaches adopted by a number of countries regarding financial coverage against disaster risks, and the respective roles of the public and private sectors in providing compensation and incentives to reduce the risk of catastrophic losses. This paper also highlights and discusses key issues and questions, presenting the lessons learned from the experiences of OECD member economies.