A comprehensive disaster risk management
strategy, involving risk assessment, institutional
capacity building, investments in risk mitigation,
emergency preparedness, and catastrophe risk
financing, can be very effective in mitigating the
impacts of natural disasters.
The World Bank Group has two complementary
catastrophe risk financing product lines:
Sovereign risk financing for direct
budget support
Contingent Financing. Development Policy Loan
(DPL) with Catastrophe Deferred Drawdown
Option (CAT DDO) to provide immediate
liquidity up to USD500 million or 0.25% of GDP
(whichever is less) to IBRD-member countries in
the event of a natural disaster.
Sovereign Catastrophe Insurance Pools. Advisory
services to help countries establish regional vehicles
to pool risks and access international catastrophe
reinsurance markets on competitive terms. The
Caribbean Catastrophe Risk Insurance Facility
(CCRIF), for example, offers parametric insurance
against major hurricanes and earthquakes in 16
Caribbean countries. A similar initiative for the
Pacific Island countries is in preparation.
Catastrophe Bonds. Cat bonds to transfer risk to
investors by allowing the issuer to not repay the
bond principal if a major natural disaster occurs.
The World Bank Group has developed a platform
for a multi-country, multi-peril cat bond that
transfers diversified risk to private investors.
Weather Derivatives. Intermediation services to
help protect countries against the risk of adverse
weather events. The first such initiative, designed to
help Malawi protect itself against the risk of severe
drought, is an option on a rainfall index linking rainfall
with national maize production.
Advisory services to strengthen
domestic property catastrophe
insurance markets
Catastrophe Insurance Pools. Advisory services
to help countries establish national catastrophe
insurance pools such as the Turkish Catastrophe
Insurance Pool, which offers efficiently priced
earthquake insurance to more than 2.5 million
homeowners. A similar pool is planned in Romania.
The World Bank Group is also supporting the
creation of a regional catastrophe reinsurance
pool for South-East European countries.
Index-Based Agricultural Insurance. Indexbased insurance programs to protect private
sector participants such as farmers and rural
financial institutions against extreme weather. The
National Agricultural Insurance Scheme (covering
more than 20 million farmers) and the WeatherBased Crop Insurance Scheme (covering more
than 600,000 farmers) in India protect against
poor harvests caused by drought or frost. Similar
initiatives are ongoing in Malawi, Thailand, and
Central America.
Agricultural Insurance Pool. Advisory services
to help countries establish agricultural insurance
pools such as the index-based livestock
insurance program in Mongolia (covering more
than 600,000 animals and involving four private
insurance companies).
Specialized Index-Based Insurance Facility.
Advisory services supported the creation of the
Global Index Insurance Facility, a multi-donor
trust fund that promotes index-based insurance in
developing countries.