Risk warning

Governments must prepare better for future disasters, says OECD

OECD Observer

Governments around the world need to be better prepared for large-scale catastrophes and take a more proactive role in working with the insurance industry and other players, OECD Secretary-General Angel Gurría told participants at the inaugural meeting of the OECD International Network on Financial Management of Large-Scale Catastrophes in Paris, 8 September 2006.

In a globalised economy, the domino effect of disasters goes beyond their economic and social impact on the countries directly affected. Recent years have seen a dramatic rise in the frequency and severity of catastrophes and the trend is towards greater vulnerability and larger losses.

Insured losses are only the tip of the iceberg given that numbers of people with insurance cover are very limited in emerging economies. More than 1,800 people died in Hurricane Katrina in the southern United States last year, with an estimated USD135 billion of damage and insured losses of around USD35 billion to USD45 billion. By comparison, the floods in China in 1996 and 1998 inflicted USD24 billion and USD30 billion dollars in economic damages respectively but only between 1% and 3% of these losses were covered by insurance.

To tackle this issue, the Network, which is open to non-member countries, will focus on the financial management of different types of large scale risks, including natural catastrophes, accidental disasters caused by human intervention, terrorist acts and pandemics. It will also assess the extent to which financial sector institutions are prepared to withstand disasters from a financial and operational perspective.

©OECD September 2006