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Insurance-related instruments for disaster risk reduction

Strategies and measures for disaster risk reduction (DRR) are not being implemented at the scale called for by the Hyogo Framework of Action. Part of the problem is that, from the perspective of decision makers with resource constraints, it is risky to invest in something that reaps benefits only in the case of a relatively unlikely event (such as a hurricane or a drought). People and institutions are understandably prone to invest in choices that yield less uncertain benefits. DRR, in itself, can be perceived as a risky endeavor - especially from the financial perspective. One way to circumvent this problem is by promoting DRR through incentives and other features embedded in market-based financial instruments, which offer financial stability or reliable access to funds to help cope with the consequences of extreme events. Since not all risks can be cost-effectively reduced, especially those that occur only very rarely, forward-thinking DRR stakeholders tend to seek options for financing the remaining or residual risks. Insurance and other disaster risk sharing approaches can serve households, national governments and humanitarian or development organizations, not only to complement ex ante DRR by ensuring or accelerating financing for post-disaster activities (like relief, recovery and reconstruction), but also as a conduit for ex ante DRR, guiding investment decisions that would result in fewer losses if a disaster materializes in the future. The objective of this paper is to assist disaster risk reduction stakeholders analyze whether - and how - insurance and other market-based risk transfer instruments can help increase resilience to disasters.
Author: Suarez, Pablo; Linnerooth-Bayer, Joanne
Language: English
Pubished By: IIASA
Pubished date: 2011

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