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WBG: Sovereign catastrophe risk pools – 15 years on and still more to come

Like many other good ideas, this one started on a paper napkin.  Fifteen years ago, a World Bank team was in Jamaica to arrange emergency relief funding to cope with destruction of Hurricane Ivan. This disaster destroyed 6,000 houses and affected almost 400,000 people. In a restaurant in Kingston, we began brainstorming ideas for creating a lasting financial solution for rapid response in the inevitable event of future hurricanes or earthquakes.

Back in 2005, disaster risk insurance relied on traditional insurance where payouts are based on actual losses. This can be slow, as losses must be assessed on the ground.   With parametric insurance, payouts are based on the severity of the storm, rather than actual losses, making payouts quicker.  But this concept was new and largely untested at that time.  The World Bank had just launched a series of parametric crop insurance pilots for small and marginal farmers in India and an index-based livestock insurance program for herders in Mongolia. We wondered. What if parametric products, based on official measurements of windspeed or ground motion, were used for governments? And what if, instead of working on their own, Caribbean governments could join forces by pooling their reserves and accessing international financial markets at cheaper rates?   We sketched this idea on a paper napkin, and the journey began.


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