banking and capital markets
January 25, 2013
Measuring the Economic Impact of More Sandys
Insuring against the potential impact of natural disasters adds to GDP growth when they strike, while a lack of coverage has the opposite effect, a recent study finds.
By David Turner
Catastrophes can boost rather than slash an economys output if heavily insured against, according to an exhaustive study of more than 2,000 disasters around the world over half a century. However, the typical catastrophe causes a significant immediate fall in domestic product growth, and two to three times as much as this in the long term.
The research, published by the Bank for International Settlements (BIS) in Basel last month, can help forecasters work out the likely effect of catastrophes on the economy, and therefore on corporate profits, in the aftermath of disasters such as Hurricane Sandy. The paper Unmitigated disasters? New evidence on the macroeconomic cost of natural catastrophes, is, according to the authors, the first to calculate the impact of cataclysms on output by allowing for the effects of risk transfer, including catastrophe bonds and other forms of insurance.....