Dealing with increased risk of natural disasters: challenges and options

Natural disaster risk is emerging as an increasingly important constraint on economic development and poverty reduction. This paper reviews what is known about these risks - that the costs of disaster have been increasing, seem set to continue to increase, and bear especially heavily on the poorest - and sets out the key economic and development issues at stake. In particular the authors focus on the actual and prospective roles of, and interaction between, market instruments and public interventions in dealing with disaster risk.

In order for developing countries to better manage natural disaster risk the report outlines three main obstacles which need to be addressed:

• insurance markets have difficulty dealing with risks of this nature which, although large relative to developing economies are small in global economic terms
• developing countries do not have the resources to take protective measures against the risk of natural disasters and, in many cases, face few insurance opportunities
• the prospect of outside emergency assistance in the event of a disaster dulls the incentive of those at risk to protect themselves (the Samaritan's dilema).

Options identified for addressing these obstacles focus on policy reform such as:

• at national level: setting aside contingency funds and offering incentives to develop insurance markets
• at international level: distributing post disaster aid conditionally with emphasis on mitigation and risk reduction.