Atlas Magazine February 2004

Risk Management

Within a few months, some of the emerging countries have been hit by a series of disasters of exceptional scale.

Whether in Bam (Iran), or Skikda (Algeria), these natural or technological disasters are to be added to the long list of the deadly events that occurred in recent months such as the plane crash of the 727 Boeing of December 26, 2003 in Cotonu (Benin), which claimed the lives of 161 passengers, or that of the 737 Flash Airways Boeing that crashed on the coast of Sharm el–sheikh (Egypt) on January 2, 2004 causing the death of all 148 passengers and crew members.

The impact of such disasters on the economy of emerging countries is by far much stronger than on that of developed countries in the sense that the losses suffered represent a major blow to GDP and cause important internal malfunctioning. For instance, hurricane Mitch that hit the Honduras in October 1998 has caused the country's GDP to dwindle down by 78%.

Likewise for the costs in human lives which is accounted for by the fragility and hence the vulnerability of buildings to earthquakes. The Boumerdes earthquake (Algeria) on May 21, 2003, measuring 6.8 on the Richter scale caused the death of 2 278 people and the injury of 11 450. In the same period, May 26, 2003, however, the Tohoku earthquake on the Japanese island of Honshu, measuring 7.0 on the Richter scale only injured 104 people.

Algeria alone, suffered four serious disasters in less than three years:

  • Floods in Algiers on November 11, 2001: 800 dead
  • The 737 Boeing plane crash (Air Algeria) on March 6, 2003: 102 killed
  • The Boumerdes earthquake (near Algiers) on May 21, 2003: 2278 killed
  • The explosion inside the Skikda chemical and gas plant on January, 19, 2004: 27 killed

Although the occurrence of some natural disasters is inevitable, it remains nonetheless true that an effective risk prevention policy is most likely to reduce future losses and minimize damage.

As to events pertaining to technological aspects, an appropriate risk management policy is required to protect both property and people.

A defective risk management on part of insurers is likely to discourage reinsurers who would abstain from markets yielding little information needed for a correct assessment for their commitments.

Indeed, in case the partial transfer of disaster risks to reinsurers was not possible, underwriters would not be able to underwrite.

As long as underwriters' risk management is not in conformity with international standards, they would not obtain high-quality reinsurance even when they come up with attractive offers.

For reinsurers, premiums are not the sole matter of concern, they are also keen on knowing the exact risks under cover, the original terms of policies, the going tariffs, exposure per area, the profile of the covered portfolio, and commitment follow-up tools.

Unfortunately, many insurers in developing countries are not endowed with the necessary tools to meet these requirements.

Advertising Program          Terms of Service          Copyright          Useful links          Social networks          Credits