Securing access to financial resources before a disaster strikes through sovereign catastrophe risk pools allows countries to respond quickly to disasters and reduce their impact on people and their livelihoods.
Risk Pools like ARC Ltd., CCRIF, PCRIC and SEADRIF are an innovative DRM mechanism enabling countries to pool risks in a diversified portfolio and transfer excess risk to the reinsurance and capital markets. These have shown their relevance in this age of increasing climate change induced events, such as droughts, tropical cyclones and floods.
Not only do these risk pools encourage sovereigns to invest in risk reduction, they also play an important role in moving the management of disaster and climate shocks away from ad hoc humanitarian assistance and focus the DRM ecosystem around an ex-ante approach, minimising loss of life and assets when disasters strike.
As disaster losses continue to rise and developing countries struggle to fund insurance premiums, Disaster Risk Financing (DRF) remains an innovative financial resilience mechanism to protect vulnerable countries from the impact of perils and help them meet the rising cost of disasters fuelled by climate change, largely not caused by their actions.
However, there are clear barriers to scaling DRF, not least the financing of premiums which need to be subsidised by the international community to encourage more countries to adopt insurance and other instruments in their proactive DRM approach.
Further is a lack of understanding and appreciation amongst governments of insurance and other risk financing mechanisms in mitigating their risk, as well as the continued reliance on traditional humanitarian aid.
