While the worst affected in the case of such natural catastrophes is the poorer sections of society, as was evident from the Asian Tsunami, the insurance industry is likely to be worst hit by the higher income groups who are aware of insurance schemes and invest in them. It is essential for an insurance company to diversify its risk profile and make sure that they are not overexposed in any specific area.
There is great market potential for insurance companies in areas like the Tsunami hit Asian regions with growing awareness among people in these countries about insurance policies. However while entering these markets insurance companies have to look at targeted growth and carefully monitor their risk appetite.
Insurance companies will also need to make use of the expertise of meteorologists, environmental scientists to monitor the natural environment. The information provided by them can be analyzed by mathematicians, statisticians and disaster experts for the prediction and effective management of such catastrophes. Experienced computer professionals will also be needed to model catastrophe exposures.
Hurricane Katrina unveiled some of the inaccuracies in catastrophe exposure modeling. ...
Also, the need to improve the quality control of data on property locations an their characteristics is likely to be reinforced. (Risk Management Solution, 2005)
Another issue raised by Hurricane Katrina was the issue of Government involvement in catastrophe insurance thus triggering off a debate on the need for government support in effective catastrophe management.
One such proposal put forth by The National Association of Insurance Commissioners called for a change in tax treatment of catastrophe risk insurance, by allowing firms to establish tax deductible reserve funds for catastrophes. (Brumbaug,2005)
In another instance, the Towers Perrin report suggested that the Government could play the role of reinsurer or facilitator of reinsurance. By doing so, the report states, flood and earthquake cover in insurance policies can become mandatory and several disputes over claims can be avoided post-catastrophe. (Towers Perrin, 2005)
Another important policy decision that can come into effect only with Government support is the issue of exercising control on human settlement in disaster prone areas. Besides exercising restrictions on settlement in these areas, the Government can also make it mandatory for people living in these danger zones to take necessary precautions to limit damage in the event of a natural catastrophe.
Public participation is the key to the success of any Government initiative to enforcing restrictions on settlement in disaster prone areas. With the support of the Government, the people living in these areas must take up the responsibility to build homes that can withstand natural calamities like earthquakes or floods.
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