5.20 **Given these constraints and the high exposure of economic agents in developing countries, there is a rationale for public support to catalyze catastrophe insurance markets.** A number of developing countries are already actively fostering meso- and micro-level insurance markets by encouraging private insurers and reinsurers to offer competitive products to homeowners, SMEs, and farmers and herders. These markets would allow for the transfer to private insurers of catastrophe risks, which would otherwise be retained by economic agents.

5.21 **The World Bank has helped countries developing markets for private property** **<u>catastrophe insurance</u> through national insurance pools and regional reinsurance pools.** A precedent involved the _Turkish Catastrophe Insurance Pool (TCIP)_ **_,_** established in the aftermath of the 1999 Marmara earthquake. The pool ensures that all property-tax-paying domestic dwellings can purchase affordable and cost-effective earthquake insurance coverage; relieves pressure on government to provide housing subsidies _ex post_ ; and transfers catastrophe risk to international reinsurance markets. TCIP was initially capitalized with a World Bank–committed contingent loan facility of US$100 million, extended to US$180 million, in 2004. Full-risk capital requirements are met through commercial reinsurance and build-up of surplus. In 2007, 2.8 million policies were issued at market-based premium rates, compared to 600,000 at initiation.

5.22 **Turkey’s success also brought worldwide recognition. To date, more than a dozen other mostly middle-income countries—including China, Colombia, Greece, India, Iran, and Philippines—are preparing their own property catastrophe insurance programs.** Also supported by the Bank, the _South Eastern Europe Catastrophe Risk Insurance Facility_ will facilitate the development of a catastrophe insurance market in Eastern European countries and thereby provide homeowners and SMEs access to affordably priced (but not subsidized) catastrophe insurance across the region. The soon-to-be launched Romania Catastrophe Insurance Pool provides homeowners with coverage against earthquake and flood risks.

5.23 **The World Bank has also helped countries develop private insurance markets to protect farmers and herders against weather-related shocks using** **_insurance pools._** A noteworthy example of _insurance pools_ in the agriculture sector involves Mongolia’s Livestock Insurance Indemnity Pool, which combines self-insurance by herders, market-based insurance, and social insurance to protect herders against excessive livestock mortality caused by harsh winters and summer drought (Box 5.1).

# **<u>Box 5.1: Mongolia’s Livestock Insurance Indemnity Pool</u>**

Combining self-insurance by herders, market-based insurance, and social insurance, Mongolia’s Livestock Insurance Indemnity Pool (LIIP) is a syndicate pooling arrangement, which allows participating insurance companies to build collective reserves. Excess-of-loss reinsurance is provided by the Government, backed by a US$5 million World Bank contingent credit facility. Accordingly, herders retain small losses, larger losses are transferred to the private insurance industry, and extreme or catastrophic losses are transferred to the Government using a public safety net program. The insurance pays out to individual herders whenever the mortality rate in a local region exceeds a specific threshold. Individual herders receive an insurance payout based on local mortality, irrespective of their individual losses. They therefore have a strong incentive to manage their herds in a manner that minimizes the impact of major livestock mortality events. Pilots in selected areas over the 2005–8 period should provide the basis for expanding the program nationwide. In the third sales season, about 600,000 animals were insured, representing 14 percent insurance penetration, for a total premium volume of US$120,000. The 2008 season saw a major loss of US$230,000 which triggered the contingent credit.

_Source:_ World Bank.

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