• Dr. Timothy X. Merritt

Disasters, Airships, and Insurance - Part 3


A jet airliner approaches the Hybrid Airship St. Paul at night inthe fog
The Crash of the St. Paul on Tenerife Island

Innovative Funding Solutions Needed

The funding required for developing, operating, and maintaining these large-scale technologies, if they are to reach their full potential, will require the financial backing of national or multi-national actors. Just as sovereign nations drove the development of shipping, aircraft, space, and cyberspace technologies (most commonly during times of war), so also will hybrid airship technology depend on state-level financial backing for full development during times of peace.


Yet paradoxically, in a manner similar to the civilian inroads being made into space exploration, the “competitors in this race are tech startups and private businesses spearheaded by billionaire entrepreneurs.”[1] An example of this entrepreneurial spirit is embodied by Sir Richard Branson, who in 1988 formed the Virgin Airship and Balloon Company in partnership with Michael Kendrick.,[2] that went on to become Straightline Aviation. Straightline works exclusively with Lockheed Martin for the 22-ton LMH-1 Hybrid Airship, and have become the world’s first owner-operator of these new hybrid, hi-tech, heavy-lift aircraft.


To unleash the enormous potential embodied by the hybrid airship concept, an equally innovative funding mechanism must be found that leverages both the entrepreneurial agility of the private companies with national-scale financial resources. Fortunately, there are already methods available that will allow hybrid airship development at the levels needed to ensure the adoption of the technology on a global scale in a manner that will attract private organizations and entrepreneurs.


Large Number of Financial Instruments Available

There are currently a wide variety of financial instruments that are capable of transferring catastrophic risk exposure of a country directly to (re)insurance markets or international capital markets, typically in the form of a catastrophic reinsurance scheme, catastrophe bond or a catastrophe contingent loan.[3] These types of financial instruments have an extremely wide application that has been applied to industrial endeavors such as oil refining, chemical operations, power generation and mining[4] as well as more broad-based applications in fields such as marine risks, aerospace risks, clean-up costs from pollution, and high net worth individual property coverage for yachts and fine art. In addition, the field of alternative risk transfer (ART) grew out of a series of insurance capacity crises that led purchasers of traditional reinsurance coverage to seek more robust ways to buy protection. However, even though ART instruments can comprise a wide range of alternative solutions, they tend to focus only on financial markets.


Global Disaster Relief Insurance

Most low-income countries, lacking a coherent plan for emergency financial coverage, tend to rely on funding from international donors for recovery efforts only after a catastrophe hits. However, in an increasingly sophisticated policy environment that recognizes the inevitability of disaster, actuary tables are being developed that help inform nations about their exposure to various types of risk. According to Clement, et al., (2018) this has set the stage for the development of a wide number of financial instruments that may assist governments in managing their financial liability to disaster.[5] The World Bank and others are assisting countries to develop risk transfer instruments such as disaster insurance and catastrophe bonds.


It makes sense for a less-developed nation with a realistic expectation of future calamities to be proactive in its efforts to mitigate those risks long before the catastrophic event occurs. Not only will it serve to reduce negative financial impacts, but if those funds are also earmarked for development of capabilities such as those found in hybrid airships, it could also do much to alleviate the types of human suffering that occurs after a disaster when inadequate infrastructure stymies recovery efforts.


Continue to Disasters, Airships and Insurance - Part 4

Go back to Disasters, Airships and Insurance - Part 2


References

[1] Houser, K. (2017) Private companies, not governments, are shaping the future of space exploration. Futurism. Retrieved online: https://futurism.com/private-companies-not-governments-are-shaping-the-future-of-space-exploration/

[2] Straightline Aviation http://www.straightlineaviation.com/the-team

[3] Michel-Kerjan, E., Zelenko, I., Cárdenas, V., Turgel, D. (2011), Catastrophe Financing for Governments: Learning from the 2009-2012 MultiCat Program in Mexico, OECD Working Papers on Finance, Insurance and Private Pensions, No. 9, OECD Publishing. doi: 10.1787/5kgcjf7wkvhb-en

[4] Smack, L. (2016). Catastrophe bonds-regulating a growing asset class: Catastrophe Bonds. Risk Management and Insurance Review, 19(1). doi:10.1111/rmir.12057

[5] Clement, K. Y., Wouter Botzen, W. J., Brouwer, R., & Aerts, J. C. J. H. (2018). A global review of the impact of basis risk on the functioning of and demand for index insurance. International Journal of Disaster Risk Reduction, 28. doi:10.1016/j.ijdrr.2018.01.001

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