In an attempt to address these questions, the heads of all the 11 national terrorism insurance programs established in OECD member countries gathered earlier this month at the OECD headquarters in Paris. The meeting was organized under the auspices of the OECD Secretary-General High Level Advisory Board on Financial Management of Catastrophes, in association with the Australian Reinsurance Pool Corporation. Also attending were the heads of two national programs, yet outside of the OECD, Israel and Russia, and some hundred governmental experts, top decision makers from the (re)insurance market, and representatives of leading research institutions.

Such an unprecedented gathering of key players in terrorism insurance markets demonstrates that in light of the increasing number of catastrophic disasters we have recently witnessed on other fronts, it is critical to be proactive, rather than waiting for the next untoward event to occur. In fact there is an important psychological bias that those who study disasters know well: if there are no successful terrorist attacks for several consecutive years, it is easy to think the threat is now over. That gives citizens, businesses and government officials a false sense of security, as if
this threat had been 100% eliminated. This is unfortunately not the case.

Indeed, while rarely disclosed to the public, there have been many terrorist attempts over the last few years that have been averted by intelligence and security services. That was vividly reminded to us by Jean-Louis Bruguière — for many years the leading investigating magistrate in France in charge of counter-terrorism affairs, who now oversees from the U.S. Treasury the international Terrorist Finance Tracking Program.

From an economic perspective, the 9/11 attacks remain the second most costly disaster in the history of insurance ($40 billion, in 2010 prices, second only to Hurricane Katrina). When they occurred, these attacks immediately called into question the responsibility and capacity of boththe insurance industry and governments around the world to provide adequate financial coverage against this risk.

Where do we stand today? OECD countries have designed a variety of different answers. Some countries have left it to individual private insurance firms to assume the risk, some have established private pools. Others — 9 out of the 31 OECD countries — have set up public-private partnerships, most often with a layered structure approach in which various stakeholders can intervene under pre-determined thresholds and where the government acts as the insurer of last
resort.

This is the case in Australia, Belgium, Denmark, France, Germany, Netherlands, Spain, the U.S and the U.K. Notably, Belgium and Denmark have established such a public-private mechanism only very recently. This suggests that many years after 9/11 the role of governments remains critical, not only in trying to prevent future attacks, but also in providing a necessary backstop to stabilize terrorism insurance markets. The need for a balanced public-private approach was already highlighted in a widely disseminated OECD report published in July 2005… the day before the London subway bombing.

Regrettably, however, five years later, still very little regulatory and market information (e.g., coverage type, price, insurance penetration, characteristics of the firms that buy terrorism insurance and those that don’t) is available to compare those national schemes and identify and share best practices.

In a move designed to overcome this limitation, the heads of terrorism insurance programs decided at our meeting this month to establish — under the aegis of the OECD High Level Advisory Board — a permanent international platform on the financial coverage of terrorism risk. This platform will monitor the evolution of national terrorism insurance programs, the degree of government involvement, provide more detailed analyses of private (re-)insurance market trends and allow closer collaboration on economic responses to terrorism.

This new OECD platform will foster the development of best practices on financial prevention, mitigation and compensation of terrorism risk to ensure fast economic recovery after another attack, benefiting not only the countries that currently operate national terrorism insurance programs, but also informing countries where national terrorism insurance programs have not been established — 20-some OECD countries, plus virtually almost all many those outside the organization.

While proper insurance coverage will not prevent the next large-scale terrorist attack, it will provide the necessary financial safety net for people and corporations to get back to their feet as quickly as possible right after it, providing some economic stability in an already turbulent world.

Click here to access the webversion of the article.

Why is this happening? Because human mind is not good at understanding low-probability events. Decision makers in organizations rarely think disasters will happen to them. But they do.

What to do? Map interdependencies among organizations and across risks; create incentive systems with proper level of responsibility over several consecutive years to avoid the “next quarter’s mentality”; have your Board run un-conventional crisis exercises so they are reactive when surprises happen.

The purpose of the meeting is to interact on the current status of terrorism risk insurance solutions in different countries nine years after the September 11, 2010 attacks against the United States, brainstorm on open questions for the future and learn from best practices. The near-miss incident over Christmas and more recently in New York City are just the latest reminders that these threats are still very much with us. Ensuring fast economic recovery in the event of another large-scale attack is critical. (Re-)Insurance programs play a central role here.

The OECD organized a large conference in the fall of 2004 gathering top decision makers and experts in catastrophe risk financing, which resulted in the report “Terrorism Insurance in OECD Countries” which got a lot of traction. More than 5 years have passed since that report was issued. We see a need to review and update our knowledge about terrorism insurance markets in 2010. Moreover, we will need to communicate our findings to decision makers in the public and private sectors so that their attention does not fade.

100 top leaders in this field, including heads of national terrorism insurance programs from 13 countries, will attend this unique event.

More information @ LINK to EVENT

The economic crisis has led to a reassessment of the systems governing global cooperation, financial architecture and policies linked to trade and climate change, and is a wake-up call to speed up implementation of long-discussed reforms. In this complex and evolving landscape, emerging markets, including those from Africa, are among the first to show signs of a recovery and are forecast to increasingly contribute to global growth in the next decade. How are leaders rising to the challenge and using the crisis as an opportunity to redesign a sustainable roadmap for Africa’s future within the new global economy?

At this important juncture, Tanzania hosts the 20th World Economic Forum on Africa, held for the first time in East Africa. In addition, the Forum’s Young Global Leaders Summit will be held concurrently in Dar es Salaam and will integrate over 200 of the world’s top young leaders in the meeting. Discussions will address how African nations are managing relations with key economic partners, with an increasing trend towards greater South-South cooperation.

As Africa joins India and China in crossing the billion person mark, its young population, natural resources and market potential are catalysts for significant future growth and development.

Co-Chairs

Ajai Chowdhry, Founder, HCL; Chairman and Chief Executive Officer, HCL Infosystems, India
Kuseni Douglas Dlamini, Chief Executive Officer, Old Mutual, South Africa
Pat Davies, Chief Executive, Sasol, South Africa
Joergen Ole Haslestad, President and Chief Executive Officer, Yara International ASA, Norway
Anna Tibaijuka, Undersecretary-General and Executive Director, United Nations Human Settlements Programme (UN-HABITAT), Nairobi

Five years ago, the United States was reeling from the destruction caused by Hurricanes Katrina, Rita and Wilma, and by the four other hurricanes that made landfall the year before. These extreme events caused historical human and economic consequences. Developing America’s resiliency to the new era of catastrophes we had entered promised to become national priority.

But other crises occurred on U.S. soil, from a pandemic to the financial turmoil. Our focus has also shifted internationally, too, to earthquakes in China, Haiti, Chile, and a volcanic eruption in Iceland. As a result, our attention to weather-related-disasters has faded, putting us in jeopardy when the next hurricane strikes the United States. But in the current economy, can we afford another Katrina-type catastrophe inflicting $150 billion in losses, or even more?

When it happens, it will result into major flooding as well. Who will pay? Flood risk in the U.S. has mainly been covered by the federally-run National Flood Insurance Program (NFIP) since 1968. Your insurer plays the role of financial intermediary, selling flood insurance and managing claims on behalf of the federal government. The NFIP has grown significantly to cover $1.25 trillion in assets today.

On April 16 Congress passed and the President signed H.R. 4851, the “Continuing Extension Act of 2010.” This act provides the NFIP with a short-term extension through May 31, once again. “Once again” because in the past two years, the NFIP has been renewed multiple times, but always with very limited changes. The problem is that these renewals merely serve to postpone again and again a much-needed national debate about what this program should do (and not do) in the post Katrina world. What the NFIP needs is not “as is” renewing — it needs a well-thought reform.
Now that Congress and the Administration are less tied up with health care reform, this is a good time to launch a national commission to debate the future of the NFIP.

I say, renew the NFIP for one year after May 31 and give this commission those 12 months to report to Congress and the White House’s Office of Management and Budget on key modifications. Objective: reform the NFIP into a more effective, equitable and sustainable program for years to come. If the NFIP is renewed “as is” for five years, as advanced by a House panel earlier this week, we could be locked in for five more years during which the necessary modifications will not be made.

Issues to look at include better flood-hazard maps and risk communication, revising the insurance contract menu (deductibles and limits), reducing the subsidies to repetitive losses, providing new economic incentives to invest in risk-reduction measures (e.g. elevating the house), and reestablishing the financial balance of the program, to name just a few.
But there is another major challenge. Many people exposed to flood risks do not have sufficient insurance coverage, if any at all. Too often, they purchased flood insurance when they moved into a new house (because their bank required it at mortgage signing), but let their policy lapse after just a few years. In a recent study undertaken with colleagues at the Wharton Risk Center, we show that about half of the new flood insurance policies issued by the NFIP since 2001 lapsed after only 3 years.

Some individuals move elsewhere, some underestimate the risk or are told they are safe, and others think Uncle Sam will bail them out anyway, so why purchase insurance? (Congress appropriated nearly $88 billion (in 2009 prices) for emergency response and recovery as a result of the 2005 hurricane season; this federal relief was more than the combined total insurance claims paid by private insurers for wind damage, plus the payments by the NFIP for flood damage caused by Katrina.)

What can be done? A simple — but potentially powerful — change in the current operation of the NFIP would be to move away from the traditional annual insurance policy.
Wharton colleague Howard Kunreuther and I have proposed that Congress and the Administration, working with FEMA and other interested parties, consider restructuring the NFIP to develop long-term flood insurance. That is, multi-year flood insurance contracts of 5, 10 or even 20 years that would be tied to the property, not to the individual. This would provide stability to individuals and the NFIP alike.

The NFIP could also work with financial institutions that could provide home improvement loans to make insured properties more resilient to future floods and spread the cost of the risk-reduction measure over time. For example, a homeowner with a 10-year flood insurance policy could obtain a 10-year home improvement loan. If the homeowner sold his property before the end of the policy period, then the insurance policy and the loan would automatically be transferred to the new owner at the same rate.

This would help millions of households stay insured for many years and also reduce their own financial exposure to future floods. America would be more resilient to disasters and the need for massive federal relief reduced. This would also create new jobs in the construction industry and could be combined with the current effort made by the Administration to make America more energy efficient.
We have discussed this proposal with many key parties in the past two years and have noticed significant interest. Earlier this month, we took part in a round-table discussion organized by U.S. Senator Roger Wicker in Gulfport, Mississippi (U.S. Representative Gene Taylor was also on the panel). Local residents expressed frustration that the United States has not yet done anything to modernize the NFIP, echoing complaints I’ve heard across the Union.

Almost five years after Katrina took 1,300 lives and inflicted historical economic losses, the reform of NFIP has not received the attention it deserves. More globally, how the United States will manage and finance the new era of catastrophes we have entered remains unanswered. Let’s not wait for the next crisis to react with regret and confusion. We need to begin to pave the way for proactive and bold changes, now.

Economic analysis helps determine how people will respond to this more dangerous world. But the traditional economic view suggests that human actions can be predicted as if people were always completely informed, perfectly responsive to economic fluctuations, and rational, in the sense of having stable, orderly preferences that always maximize their individual economic well-being. In fact, disasters seriously challenge this view.

The current situation in Haiti highlights three critical elements where behavioral scientists have found the rational predictions of many economists to be flawed…..”

Op-Ed jointly written with psychologist Paul Slovic in the international edition of Newsweek magazine. READ THE FULL Op-Ed: A More Dangerous World.MichelKerjan&Slovic.Newsweek.2010

Keep in mind that the Richter scale on which one measures the intensity of a quake is not linear (that is a 9 magnitude quake is nowhere comparable to a 8 or 7 magnitude; it is hundreds times more devastating).
As a reference point the 2004 large Indian Ocean quake in December 2004 was of 9.1 magnitude.

Quick take aways:

- Chile quake is the 5th most intense quake since 1900 (the largest was a 9.5 magnitude event that struck Chile in 1960, causing 1,655 fatalities)
- Tsunami is expected
- Death toll unclear at that time, probably in the thousands.
- Conception, second largest city of the country, is severely hit.
- Chile is much better prepared to deal with such an event than Haiti was

I will keep you updated as more information arrives.

More info on CNN live-Click here:

The World Economic Forum and Forum of Young Global Leaders (YGL) Present: Arts Leadership in Focus, a Concert Highlighting the Work of Young Global Leaders, at Carnegie Hall on February 18, 2010
Join us for an extraordinary concert as well: Violinists Joshua Bell and Julian Rachlin with Conductors Valery Gergiev and Carlos Miguel Prieto Join Musicians From Youth Orchestra of the Americas, El Sistema of Venezuela, Manhattan School of Music and New England Conservatory

Panel Discussion and Remarks by WEF Founder and Executive Chairman Professor Klaus Schwab; Jose Antonio Abreu, Founder of El Sistema; Young Global Leaders; and Arts Community Leaders
On February 18, 2010, the World Economic Forum and the Forum of Young Global Leaders will present an event to highlight the transformational power of arts in society and the critical role of cultural institutions and arts education, particularly during times of economic challenge. Musicians who are members of the Forum of Young Global Leaders and the World Economic Forum will be featured in performance at Carnegie Hall, and members of the Forum and the arts community will convene in a panel discussion.

Concert

During the evening at Carnegie Hall, in addition to the musical performances, remarks will be made by Professor Klaus Schwab, Founder and Executive Chairman, World Economic Forum; Clive Gillinson, Chairman and Chief Executive Officer of Carnegie Hall; Jose Antonio Abreu, Founder of El Sistema, and Young Global Leader John Hope Bryant, Vice President of U.S. President’s Advisory Council on Financial Literacy and Founder and CEO of Operation HOPE. Bryant will also introduce a video presentation highlighting major initiatives by Young Global Leaders in the arts, including Midori’s and Lang Lang’s foundations, as well as by El Sistema of Venezuela and the Youth Orchestra of the Americas.

Founded in 2001 by New England Conservatory and Vision, Inc., Youth Orchestra of the Americas was inspired by José Antonio Abreu and the National System of Youth and Children’s Orchestras of Venezuela. Led by its Artistic Advisor Plácido Domingo, YOA makes it possible for outstanding American talent from all socio-economic backgrounds to realize their true artistic and leadership potential. Hailing from more than 20 western hemisphere nations, YOA musicians are immersed in a multitude of cultures within the orchestra, and through international concert tours they are exposed to diverse peoples, traditions and realities outside of their own lives and countries. Audiences, in turn, experience a dynamic, multi-national ensemble of young people working hard together, side-by-side, in harmony.

“Arts and culture play a central role in the transformation of human society. The passion, performance, courage and imagination of artists are qualities of genuine leadership and teamwork needed in the world today. We hope that this event will inspire other cultural leaders to play a prominent role in addressing society’s challenges and helping restore the values needed to reshape our future,” said Professor Schwab.

The Forum of Young Global Leaders is a unique, multi-stakeholder community of exceptional young leaders who share a commitment to shaping the global future. Each year the World Economic Forum identifies 200-300 extraordinary individuals under 40 from the worlds of politics, business, civil society, academia, arts and culture. Together they form a dedicated community that works to address and craft innovative responses to global and regional challenges, dramatically affecting the lives of future generations.

Panel discussion

Participating in the panel discussion at 11:00 am on February 18 will be leaders from the worlds of business, arts, academia and politics. It will focus on the long-term transformational impact of arts education on society and the role of the arts and cultural leaders in the collaborative process of addressing and solving global challenges in the areas of crime, education, poverty and international diplomacy. The panel is open to members of the media and the arts community.

Panelists include:

Professor Klaus Schwab, Founder and Executive Chairman, World Economic Forum
Jose-Antonio Abreu, Founder, El Sistema
Matthew Bishop, New York Bureau Chief, The Economist (YGL)
Deborah Borda, President and Chief Executive Officer, Los Angeles Philharmonic
Luis Alberto Moreno, President, Inter-American Development Bank, Washington, DC
Hilda Ochoa-Brillembourg, Chief Executive Officer, Strategic Investment Group and Founding Chairman, Youth Orchestra of the Americas
James Wolfensohn, Chairman, Wolfensohn & Company; former president of the World Bank group

The moderator of the panel discussion will be Erwann Michel-Kerjan, Managing Director of the Risk Management and Decision Processes Center at the Wharton School, University of Pennsylvania (YGL)

In the coming weeks and months millions of families will honor those who perished. Then, the next major question on the country’s agenda will be: what are the economic consequences of this large-scale disaster? How can we reconstruct the country to make it more sustainable in the face of future earthquakes and hurricanes?

There are lessons to be learned here from other quakes (China 2008, 2009), tsunamis (South east Asia, Dec 2004), hurricanes (US/Gulf of Mexico, 2004, 2005, 2008) so we don’t make the same mistakes again and again.