Catastrophe Risk Modelling and Insurance Penetration in Developing Countries

Abstract eng:
The highest economic losses caused by natural catastrophes usually burden developed countries, as they have much more assets exposed to natural hazards, despite being less vulnerable. For example, events such as Kobe earthquake (1995) and Hurricane Katrina (2005) with economic losses of over $100 billion each, are known as biggest economic disasters in history. However, the adverse effects of natural hazards on the developing countries are far more destructive given their small-sized economy and the lack of proper risk management framework. Due to lack of proper catastrophe risk management strategies in the developing countries, sourcing the necessary financial funds for reconstruction and rehabilitation remains as the government’s responsibility, resulting in great pressure on the country’s economic structure. If governments are to pay for these losses, they have to either divert funds already assigned to other development projects or request help from international donors. This article tries to open discussion on how natural catastrophe loss modelling can help natural catastrophe risks in developing countries to be absorbed in the wider market, with resulting financial benefits to households, local industries, governments, domestic insurers and international reinsurers.

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