Narrowing the education gap and Insurance-Linked Securities (ILS)
By Toby Pughe FCII and Kirill K. Savrassov
Traditional indemnity insurance has been used for hundreds of years and to great effect. However, some of its limitations have started to surface over the last decade. For example, subjectivity around policy wordings has led to disputes in the courts spanning months, if not years, delaying disaster recovery and impacting affected parties further.
When a natural disaster strikes, immediate steps need to be taken to protect survivors and provide them with temporary shelter, food, and water. Moreover, in the medium to long-term, homes, places of employment, and critical infrastructures such as schools and hospitals need to be rebuilt. In developed nations, government bodies such as FEMA in the USA typically act fast and provide these things. However, the same cannot be said for less developed markets. This is where Insurance-Linked Securities could make a significant contribution.
The renowned Chinese Belt and Road Initiative (BRI) is a perfect example where ILS could help transfer industrial and sovereign risk to the capital markets. China, through loans, has invested tens of billions of dollars in infrastructural development in Central Asia and other neighbouring regions. Despite these regions having significant exposure to natural disasters, most of these new developments aren’t adequately insured.