Large-scale risks, such as natural hazards, cyber attacks and infectious disease outbreaks, can lead to devastating financial consequences for individuals, households and businesses. Insurance markets play a critical role in providing financial protection against these risks. However, evolving climate and environmental risks, fast-moving technological changes, and increasing geopolitical tensions and social unrest are testing the ability of private insurance markets to achieve broad coverage.
This report aims to support government efforts to build financial resilience against catastrophic risks and mitigate the social, economic and financial consequences of unprotected financial exposures. It provides a framework to assess the need for government-supported financial protection and the advantages and disadvantages of the main approaches to offering such support. It applies this framework to three types of large-scale risks, natural hazards, infectious disease outbreaks and cyber-attacks and incidents. It examines the implications of increasing wildfire losses and government approaches to supporting the availability, affordability and take-up of insurance coverage for this risk. Finally, it examines how the different design features of flood risk insurance programmes contribute to four common objectives for a public-private insurance programme.
This report was prepared by the Capital Markets and Financial Institutions Division of the OECD Directorate for Financial and Enterprise Affairs. It was prepared by Leigh Wolfrom under the supervision of Pablo Antolín, Head of the Insurance and Pensions Unit, and Serdar Çelik, Head of Division. Timothy Bishop and Ana Dueñas Huerta provided input.
The report benefitted from valuable input from delegates to the OECD Working Party on Insurance and Pensions and members of the OECD High-Level Advisory Board for the Financial Management of Catastrophic Risks. Chapter 5 benefitted from responses to a questionnaire circulated to the World Forum of Catastrophe Programmes (WFCP) and from the comments received from WFCP members.