Governments could reduce the human and economic costs of natural catastrophes by working more closely with the insurance industry, the Geneva Association says.

Rapid population growth, expansion of urban areas and climate change have increased catastrophe potential but “disaster management has not always kept pace”, according to a report by the industry think tank.

“Market mechanisms work effectively to create and grow insurance practices in developing countries,” association Chairman and Munich Re CEO Nikolaus von Bomhard said.

“However, without suitable economic and regulatory frameworks, insurance risk management mechanisms are falling short of their potential to reduce the impact of disasters.

“By working together with insurers, governments have the means and capability to leverage this potential, to increase protection of individuals and the economy.”

Spreading risk through the global reinsurance industry is more important than ever, the report says.

The insurance industry can quickly inject cash into catastrophe-hit regions, reducing the burden on governments and freeing capital for recovery efforts, the association notes.

After the 2011 earthquake and tsunami in Japan, 90% of the $US38.5 billion ($40.57 billion) in insured losses were paid in three months.

Government insurance pools can help but they must not undercut private insurers, the report says. “Risk-based, actuarially sound pricing is an essential mechanism for insurance to mitigate risk.”

Building resilient infrastructure after catastrophes is expensive but vital, the association says.

Michael Butt, Co-Chairman of the association climate risks and insurance project and Axis Capital Chairman, said: “After a catastrophe we can decide whether we want to rebuild, or if we make way for nature and relocate.

“When we rebuild, we can do so in a risk-resilient, energy-efficient way. Strong local government policy on land use and building codes, coupled with disaster recovery plans, will allow communities to rebuild quickly and sensibly.”