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CATalytic insurance : the case of natural disasters

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  • Cordella, Tito
  • Yeyati, Eduardo Levy

Abstract

Why should countries buy expensive catastrophe insurance? Abstracting from risk aversion or hedging motives, this paper shows that catastrophe insurance may have a catalytic role on external finance. Such effect is particularly strong in those middle-income countries that face financial constraints when hit by a shock or in its anticipation. Insurance makes defaults less appealing, relaxes countries'borrowing constraint, increases their creditworthiness, and enhances their access to capital markets. Catastrophe lending facilities providing"cheap"reconstruction funds in the aftermath of a natural disaster weaken but do not eliminate the demand for insurance.

Suggested Citation

  • Cordella, Tito & Yeyati, Eduardo Levy, 2010. "CATalytic insurance : the case of natural disasters," Policy Research Working Paper Series 5377, The World Bank.
    • Handle: RePEc:wbk:wbrwps:5377
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    References listed on IDEAS

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    Cited by:

    1. Daniel J. Clarke & Olivier Mahul & Richard Poulter & Tse-Ling Teh, 2017. "Evaluating Sovereign Disaster Risk Finance Strategies: A Framework," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 42(4), pages 565-584, October.
    2. Tito Cordella & Eduardo Levy Yeyati, 2015. "CATalytic insurance: the case of natural disasters," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 31(3-4), pages 330-349.
    3. Clarke,Daniel Jonathan & Wren-Lewis,Liam, 2016. "Solving commitment problems in disaster risk finance," Policy Research Working Paper Series 7720, The World Bank.
    4. Malin Song & Qianqian Du, 2019. "Analysis and exploration of damage-reduction measures for flood disasters in China," Annals of Operations Research, Springer, vol. 283(1), pages 795-810, December.

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    Keywords

    Debt Markets; Bankruptcy and Resolution of Financial Distress; Labor Policies; Emerging Markets; Financial Intermediation;
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