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Solidarity and Opportunity: The Potential of Insurance for Disaster Risk Management in Developing Countries

Description

Despite a sophisticated and resourceful global insurance industry, many developing countries remain largely unprotected and exposed to high levels of disaster risk. The effects of disasters on developing countries are long-lasting and more severe than in industrialised countries, often depleting scarce financial resources and diverting essential funds towards emergency relief. Part of the problem is the lack of adequate disaster risk management.

The principles and practice of insurance could play a key role in helping developing countries manage disaster risk and reduce losses. Insurance is built on the idea of solidarity and, when properly implemented, insurance serves as an effective way to manage solidarity. Insurance can play a developmental role by mitigating disasters and minimising the potential negative impact and cost on the lives of the poor. It is often said that insurance follows industrial development, but with regards to natural disasters, proper risk management is a necessary prerequisite for sustainable development.

The challenge is how to develop sustainable insurance and risk transfer schemes in hazard prone developing countries and make coverage accessible to the poor and 'uninsurable'. Recent initiatives have shown the potential benefits of financial risk transfer mechanisms, which through traditional insurance structures and newer developments such as catastrophe bonds, weather derivatives and micro-insurance, provide the flexibility to adapt to individual country and peril settings.

Outputs & events

In order to build on earlier ProVention initiatives and further develop the potential of insurance for disaster risk management in developing countries, ProVention organised two linked events in October 2004:

• International Conference: 'Solidarity and Opportunity: The Potential of Insurance for Disaster Risk Management in Developing Countries' (October 21, 2004, Swiss Re Centre for Global Dialogue - Zurich / Switzerland)
• International Workshop: 'Experiences in Micro-Insurance' (October 22, 2004, Swiss Federal Institute of Technology - Zurich / Switzerland)

The events brought together leading policy makers, academics and practitioners from the business, development and disaster reduction communities who share a common interest and concern in promoting the use of disaster risk management in developing countries. Providing a unique forum for dialogue to exchange views and approaches, these initiatives will serve as catalysts for new linkages and mutually beneficial partnerships between the private sector and the development community active in disaster reduction.

A report on the conference and workshop is available for download.

Links

ProVention has launched a number of activities involving the private sector and financial tools in particular. These initiatives have helped advance theory and practice in the development of financial instruments of risk management whilst also serving as a catalyst for new partnerships and linkages between the private sector and the development and humanitarian community active in disaster reduction:

• Critical Infrastructure, Disaster Vulnerability and the Role of the Private Sector
• Economic and Financial Impacts of Natural Disasters: An Assessment of Their Effects and Options for Mitigation
• Improved Database for the Social and Economic Analysis of Disaster Impacts
• Innovations in Managing Catastrophic Risk: How Can They Help the Poor?

Ongoing activities include:

• Corporate social responsibility and disaster reduction
• Microinsurance pilot scheme
• Microinsurance research study