For some countries, a disaster not covered by insurance could be a close analogue to the end of the world.

A couple of years ago, when wildfires were raging in California, I was surprised by a report from an American TV channel. The fire victims who answered the reporter’s questions were not particularly upset about their lost property – everything was covered by generous insurance. This contrasts with the typical picture of a natural disaster in our country, like the recent flood in the Irkutsk region: for many residents, the disaster becomes a personal financial catastrophe.

Americans, however, already know that generous insurance against disasters may simply not exist. Insurance companies, having recognized the patterns of recurring disasters and the scale of losses concentrated in one geographic area, simply leave the market. This is what happened, for example, in Louisiana after Hurricane Katrina in 2005. To prevent this from happening, financiers specializing in extreme risks came up with a tool - a catastrophe bond, or cat-bond, as it is also called. With its help, insurers transfer their risks to a large pool of investors. For the pool of investors, in turn, this is also an interesting asset: it allows for better portfolio diversification, since the risks of natural disasters by definition do not correlate with the risks of financial markets.

However, cut bonds and their analogues are of interest not only to the insurance industry. The World Bank and the UN are actively promoting their introduction into the budget financing schemes of developing countries. Competent financial management of natural disaster risks has the potential to reduce the state budget deficit by 10-25%. This is relevant for two reasons. Firstly, the global trend is the growth in the number of natural disasters, which has long exceeded the number of man-made accidents. Secondly, for some countries, a disaster not covered by insurance may be a close analogue of the end of the world. For example, only direct financial losses from the Spitak earthquake of 1988 amounted, according to rough estimates, to 120% of Armenia's GRP. Imagine that the republic could not count on help from the rest of the USSR.

Russia is not actively participating in the global discussion on the introduction of cat bonds. This was discussed a lot last year at the first UN working meeting on catastrophe financing for countries and regions, where Russia was represented by only two speakers: me and a colleague from London. On the one hand, neither at the level of ministries nor at the level of regions do we have an understanding of the true value of cat insurance for regional budgets. At the same time, for example, the material damage from the flood in the Irkutsk region has already amounted to 20% of the regional budget expenditure.

On the other hand, unlike Armenia, we are a rich country. Thanks to the reserve fund at the federal government level, we can afford to finance the elimination of the consequences of natural disasters. Theoretically, this is rational: those who buy insurance in advance always overpay for overestimated risks. In practice, we can only dream of the calm of California residents regarding material losses.

The author is the vice-rector of the New Economic School for strategic development.

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