Hurricanes, earthquakes, or flooding occur in almost all countries in the world. The government bears the risk in most developed countries in the world.
Examples of wholly government-owned schemes are two of the oldest specific disaster insurance schemes, the Spanish comprehensive disaster insurance scheme managed by the Consorcio de Compensacion de Seguros, and the residential earthquake insurance managedby the New Zealand Earthquake commission, both of which are over 60 years old. In both cases they are managed as government business enterprises and expected to be sustainable with the assistance of government guarantees for very extreme events. Both schemes are compulsory for property insured for fire.
In a similar way, France and The Netherlands have government programs for flooding and Japan has a government program for earthquakes. The Japanese scheme is primarily covered by accumulated funds and government guarantee plus reinsurance from a government-owned earthquake reinsurance company.
In France government involvement is through the wholly government-owned Caisse Centrale de Reassurance which provides catastrophe reinsurance to French insurance companies by a combination of accumulated funds and government guarantee. The provision of catastrophe insurance by insurance companies is compulsory but because the reinsurance scheme is not itself reinsured, the reinsurance premiums charged by the scheme are lower than those charged by commercial reinsurers reducing the premiums charged to individual property owners.
Joint Government Insurance Industry Schemes
Almost all present national approaches to catastrophe insurance are different, and the more government is involved in them, the more different they are from one another. The reason for this appears to be that catastrophe insurance is primarily concerned with meeting a community need, as opposed to an individual need, as opposed to an individual need, and consequently local economic, social, and political factors play a major role in developing an acceptable and sustainable system. The value from studying other systems is the knowledge that can be learned about the wide diversity of approaches that are possible.
There are also lessons to be leaned about the relative effectiveness of different approaches. In terms of penetration of earthquake insurance, the highest levels of penetration tend to be in countries where the penetration of ordinary fire insurance is high and the earthquake risk is perceived to be relatively low resulting in earthquake being a standard inclusion in most fire insurance policies.
This suggests that without a considerable degree of compulsion which is enforced, achieving a high level of penetration of fire insurance is also needed, unless the insurance is also needed, unless the insurance is handled separately from normal insurance. Another lesson is that if premiums are likely to be high relative to affordability when determined in accordance with the normal commercial indemnity approach to insurance using commercial insurance, then some trade-offs may have to be made. Limitations on policy conditions, possibly in conjunction with parametric insurance, can be applied. These, however, will mean that individual policyholders will only be partially covered if they sustain losses. Alternatively, a combination of pre- and post-event funding of the risk can be explored, with the government assuming a significant portion of the risk through guarantees or the use of contingent debt facilities, which may mean levies or tax increases to fund these losses after a major event occurs. This retained liability has to be compared with the liability assumed if no scheme is developed and the penetration of earthquake insurance is very low.