“In preparation for climate change, it is mandatory to subscribe to disaster insurance such as crops.”

“If you consider the trend of climate change, the experience rate system is difficult to reflect the possibility of deepening natural disasters, so insurance premiums may be set lower than the appropriate level.”

The current national reinsurance method also has a problem that it can increase the fiscal burden. In the current storm and flood insurance, if the loss ratio exceeds a certain level, the government compensates for it.

From the government’s point of view, although the reinsurance fee received in exchange for reinsurance is relatively low, the cost to be borne in case of a disaster is infinite.

“In order to increase the efficiency of disaster compensation and insurance operation, it is necessary to change the subscription of accident insurance from a voluntary subscription method to a mandatory subscription method.” It is necessary to build and introduce Catastrophe Bonds as a means of distributing the risks of private insurers,” he stressed.

Catastrophe bonds are bonds issued for the purpose of transferring the risk of accident insurance payments to the capital market. If a disaster that satisfies the conditions set at the time of issue of bonds does not occur, bond investors can make investment returns. If the conditions are met, the insurance company that issued the bond uses the amount of the bond issuance as a resource for the payment insurance payment, and the investor receives the remaining assets after payment of the insurance payment.

“Generally, the issuer of disaster bonds is a special purpose organization (SPV) established by the insurance company, not the insurance company that sold accident insurance.” In order to do so, it requires permission from the Financial Services Commission, so the procedural transaction cost is higher than the benefits of issuing bonds.

He added, “The establishment of SPVs for issuance of disaster bonds should be relaxed from the permit system to the reporting system, and the establishment requirements and procedures should be simplified.”