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The Ministry of Finance and the World Bank take out insurance against earthquakes: it will reach coverage of US$630 million

The Ministry of Finance, through the International Bank for Reconstruction and Development, jointly with the World Bank finalized the contracting of earthquake insurance, whose annual premium reaches 4.75% and coverage of US$630 million.

The measure, announced at the end of February, seeks to cover the financial impact that this type of high-intensity -but infrequent- phenomena could generate in the management of fiscal policy and the level of the country’s public debt.

On the other hand, it will allow Chile to receive pre-established compensation payments for up to the maximum coverage in the event of certain high-intensity parameterized seismic events that cause material damage and damage to public finances.

In this sense, if the earthquake is greater than a particular threshold and occurs in a certain area and depth, the insurance provides for a specific payment associated with the phenomenon, which, on average, occurs approximately every 70 years.

After the news, the Minister of Finance, Mario Marcel, indicated that “this constitutes a new step towards better protected and resilient public finances in the face of large-scale natural disasters, such as an earthquake, and is part of a comprehensive strategy which reinforces our commitment to fiscal responsibility.”

“The mobilization of capital for catastrophic risk management is a key element in supporting our comprehensive strategy, which also contemplates the availability of resources in the National Budget for events of greater frequency but lower fiscal cost, and the creation of a Fund for Natural Disasters (FODEN) that is currently under discussion in the Senate for those less frequent events, but with a somewhat greater impact on public finances”, added Marcel.

For her part, the managing director and financial officer of the World Bank group, Anshula Kant, expressed satisfaction “for having partnered with the Government of Chile to carry out this important transaction. This is another example of how the World Bank mobilizes private capital for development and supports disaster risk management in our member countries.”

It should be noted that in June of last year, the Ministry of Finance began studies together with the World Bank to design a series of perimeter financial insurance structures in order to cover and face in a more prepared way the financial consequences generated by an earthquake.

Source: Elmostrador





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