In a previous post we saw that while ancient India under the Guptas had force majeure events such as flood, fire, and famine just like we do today, and that Kautilya in his Arthashastra expected the king (government) to step in, because insurance apparently hadn’t been invented yet. Recent news indicates that apparently insurance still isn’t much applied, not only in India, but also on the Internet:

“Residents in the Middle East who are sweltering in the heat and humidity must be baffled by the scope and ferocity of flood waters lashing huge parts of South Asia, including India, Bangladesh, reports of which are now being televised daily.

“How can nature be so discriminating that it punishes one part of the world with drought and penury while forcing evacuations elsewhere with floods?

“While billions of dollars are lost in these countries, which affects their national economies adversely, the insurance industry is left almost untouched as most of the goods and lives lost are uninsured.

“Conversely, in the United States, Canada, Western Europe and Japan, for instance, the insurance industry generally plays an active role in providing financial protection against such miseries.

“For this reason, natural calamities such as earthquakes and floods, even when they strike with their full might in the subcontinent and South-East Asia, do not hugely impact the global economic outlook.”

Managing Risk: Natural disasters: It is wise to prepare for worst By V.A. Tommy, Special to Gulf News

How do insurers handle such events in the countries that do use insurance widely for them? The article says that insurers support an index called the Tropical Storm Risk (TSR) that predicts how many hurricanes to expect.

“According to a research report released in February by Munich Re, the largest reinsurance company, insured losses from natural catastrophes totalled $15.8 billion last year, up 37.4 per cent over 2002.”

That’s a lot of money. But it’s less than the $50 billion worst case Internet worm risk for just the U.S. we saw in the previous posting.

If it is wise to insure against fire, flood, and storm, shouldn’t it also be wise to insure against cyber-hurricanes that could cause even more economic damage?

-jsq