Swiss Re is in talks with Latin American governments including the state of Rio de Janeiro in Brazil and the government of Colombia to sell them disaster insurance.
Michel Liès, chairman of global partnerships at the world's second-biggest reinsurer, said most governments were financially ill-prepared for disasters, the cost of which presently fell mostly on the taxpayer. "In some cases, insurance carries less than 1 per cent of the burden," Mr. Liès told the Financial Times.
Brazil is considered one of the safest countries in the world for natural disasters. But with climate change and increases in population and industry, states along the south eastern coast of Latin America's biggest economy have been hit by increasingly severe flooding each rainy season.
The country suffered the worst natural disaster in its history this year in the hills outside the city of Rio de Janeiro when more than 900 died in floods and landslides and 100,000 people were left homeless.
Colombia also suffered its worst natural disaster recently when heavy rains left about 400 people dead, 3m displaced and caused damage that is expected to cost billions of dollars.
As Latin American countries become more dependent on commodities exports and spend more on infrastructure, with Brazil set to invest $89-billion to stage the football World Cup final in 2014 and the Olympics two years later, this bill will rise, insurers say.
Mr. Liès said presently part of the burden falls on the insurance bills of individuals and companies.
The value of average insurance claims per year from disasters increased four to fivefold last decade compared with the 1980s, he said.
But the vast majority of the bill from disasters, particularly in developing countries, is paid for by the state from its budget, often with devastating fiscal effects.
Only a handful of governments have disaster insurance with total cover worth less than $1-billion. "A lot of countries just react after the event," he said.
Mexico was one of the first countries to buy disaster insurance from Swiss Re with a so-called "cat bond" in 2006 followed by another $300-million facility launched in 2009. Under these bonds, investors receive a high interest rate but risk of losing all of their money in the event of a disaster.
Mr. Liès said alongside financial cover, the world also needed to prepare a better physical response system to disasters.
Governments needed to build global network of "resources", such as rescue teams and equipment, capable of responding within 24 hours to a disaster of the scale of Japan's earthquake this year.
"You can have a network like that which can probably improve the planetary response to a big disaster," said Mr. Liès.
The Japanese and New Zealand earthquakes as well as the Australian floods took Swiss Re's estimated pre-tax impact from disasters to $2.3-billion within the first three months of the year.
Mr. Liès was visiting Brazil as Swiss Re was contemplating changing the status of its office in the country from "admitted", which meant it had no capital onshore, to that of a fully capitalized subsidiary.
The move is necessary after a change in government insurance rules designed to keep more business onshore by restricting the ability of foreign groups to transfer premiums to their parent organizations offshore.Report Typo/Error