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Managing unknown risks: the future of global reinsurance

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Author Info
Chichilnisky, Graciela
Heal, Geoffrey

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Abstract

It has been said that insurance is the last of the financial services to accept radical change (Denney [1995-1996]). Yet there has been a fundamental shift in the geographic location and in the organization of the reinsurance industry in the last six years (Chichilnisky [19966]). Global environmental risks are partly responsible for this change; increased weather volatility and catastrophic risks are difficult to diversify using traditional insurance practices. To provide a map to the future, we need a realistic appraisal of how we got where we are. This is the story of how humans have hedged risks. There are two basic and distinct approaches: statistical and economic. The former is typical of the insurance industry; the latter typifies the securities industry. Both are needed to manage today's catastrophic risks. Neither alone will do. We show how a combination of both leads to efficient outcomes, and is the way to the future (Chichilnisky [1996a, 1996b, 1996d]).

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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8820.

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Date of creation: 1998
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Handle: RePEc:pra:mprapa:8820

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Related research
Keywords: insurance; risk; global finance; environment; catastrophe bundles; climate change;

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Find related papers by JEL classification:
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies
Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects

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  1. Chichilnisky, G. & Heal, G., 1992. "Financial Markets for Unknown Risks," Discussion Papers 1992_31, Columbia University, Department of Economics.
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  2. Chichilnisky, G. & Heal, G., 1993. "Global Environmental Risks," Discussion Papers 1993_03, Columbia University, Department of Economics.
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  3. Chichilnisky, Graciela, 1996. "Markets with endogenous uncertainty: theory and policy," MPRA Paper 8612, University Library of Munich, Germany. [Downloadable!]
  4. Chichilnisky, Graciela, 1998. "A Radical Shift in Managing Risks: Practical Applications of Complexity Theory," MPRA Paper 7881, University Library of Munich, Germany. [Downloadable!]
  5. Chichilnisky, Graciela, 1996. "Financial Innovation in Property Catastrophe Reinsurance: The Convergence of Insurance and Capital Markets," MPRA Paper 8333, University Library of Munich, Germany. [Downloadable!]
  6. Cass, David & Chichilnisky, Graciela & Wu, Ho-Mou, 1996. "Individual Risk and Mutual Insurance," Econometrica, Econometric Society, vol. 64(2), pages 333-41, March. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Marcello Basili, 2008. "The global strategy to cope with H5N1: the property rights caveat," Department of Economic Policy, Finance and Development (DEPFID) University of Siena 0908, Department of Economic Policy, Finance and Development (DEPFID), University of Siena. [Downloadable!]
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