A corroborative effort involving both public and private sectors, through a public-private partnership, is key, especially in Asia. This is in light of the large size of risks to be insured, the substantive size of population which needs insurance cover but remains unreachable, and the lack of natural incentives for the private sector to offer sufficient coverage for certain risks. A PPP approach recognizes the different roles as well as limitations of governments and private insurers, and can enable innovative solutions collectively. Public-private financing solutions, such as natural catastrophe insurance pools, micro insurance, and alternative risk transfer solutions such as catastrophe bonds, have the potential to enlarge the financial capacity of insurance solutions, by providing affordable cover to a wider pool. With the expertise and capital  BIS central bankers’ speeches  3  support from international and regional organisations, the public and private sectors can work together in developing purposeful risk transfer solutions for the region. 12. It is encouraging that governments, regulators, industry, academia and international organisations in Asia have already taken initial steps to develop effective PPPs to enhance natural catastrophe risks management. In October last year, for example, the International Finance Cooperation (“IFC”), a member of the World Bank Group, announced a partnership agreement with MAIPARK Indonesia, a specialised catastrophe reinsurer formed by the government and industry, to develop an earthquake-index insurance product to help protect banks that provide loans to individuals and micro, small and medium enterprises from losses due to natural disasters such as earthquakes6.
Such a commitment helps to strengthen confidence in the sustainability of public finances, reduces interest rate risk premia and improves the conditions for sound and sustainable growth. The implementation of credible policies is crucial in view of ongoing financial market pressures. Substantial and far-reaching structural reforms, complementing fiscal adjustment, should be urgently implemented to improve the prospects for higher sustainable growth and employment. Major reforms are particularly necessary in those countries that have experienced a loss of competitiveness in the past or that are suffering from high fiscal and external deficits. Increased product market competition and labour market flexibility would further support the necessary adjustment processes in the economy. All these structural reforms should be supported by the necessary improvements in the structure of the banking sector. Sound balance sheets, effective risk management and transparent, robust business models remain key to strengthening banks’ resilience to shocks and to ensuring adequate access to finance, thereby laying the foundations for sustainable growth and financial stability. We are now at your disposal for questions. BIS central bankers’ speeches  3