• Insurance for poor people

Insurance for poor people

Natural disasters in developing and small countries can disrupt the macroeconomic environment and put severe strain on public finances. International relief funds provided after a disaster are not always reliable and are often slow to arrive. This paper argues that more frequent and intensive use of commercial insurance markets in disaster-prone developing countries could help limit economic disruption to public finances and thereby facilitate faster recovery.

This paper surveys the various available insurance options and reviews recent initiatives in developing and emerging market countries. These include:

• schemes to provide resources for disaster relief and reconstruction, such as the World Food Programme (WFP) for drought insurance in Ethiopia
• schemes to provide lump sum support to the government budget, currently being planned by the World Bank for the Caribbean
• schemes aimed at limiting government contingent liabilities, such as the Turkish catastrophe insurance pool and associated compulsory earthquake insurance scheme

However, ensuring the sustainability and continued development of natural disaster insurance markets presents a number of challenges face the insurance community, donors, and international financial institutions (IFIs). These include the effects of global warming on the frequency of natural disasters, and questions about the continuing appetite of investors for catastrophe risk in international capital markets.

The report advises that IFIs and the donor community should collaborate with recipient countries to effect a shift from ad hoc, after-the-event relief, toward more reliable and predictable provisioning in advance through the use of commercial insurance.

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