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Evaluating Sovereign Disaster Risk Finance Strategies: A Framework

Author

Listed:
  • Daniel J. Clarke

    (Government Actuary’s Department)

  • Olivier Mahul

    (World Bank)

  • Richard Poulter

    (World Bank)

  • Tse-Ling Teh

    (The London School of Economics and Political Science)

Abstract

This paper proposes a framework for ex ante evaluation of sovereign disaster risk finance instruments available to governments for funding disaster losses. The framework can be used by governments to help choose between different financial instruments, or between different combinations of instruments, to achieve appropriate and financially efficient strategies to fund disaster losses. In doing so, the framework takes into account the risk of disasters, economic conditions and political constraints. The paper discusses the framework in the context of a hypothetical country, with parameters selected to represent a disaster-prone small island state. The paper shows how a mix of instruments can be chosen to minimise the economic opportunity cost given the underlying disaster risk faced and prevailing economic and financial conditions.

Suggested Citation

  • Daniel J. Clarke & Olivier Mahul & Richard Poulter & Tse-Ling Teh, 2017. "Evaluating Sovereign Disaster Risk Finance Strategies: A Framework," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 42(4), pages 565-584, October.
    • Handle: RePEc:pal:gpprii:v:42:y:2017:i:4:d:10.1057_s41288-017-0064-1
    DOI: 10.1057/s41288-017-0064-1
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    References listed on IDEAS

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    7. Clarke,Daniel Jonathan & Coll-Black,Sarah & Cooney,Naomi Victoria & Edwards,Anna, 2016. "A methodology to assess indicative costs of risk financing strategies for scaling up Ethiopia's productive safety net programme," Policy Research Working Paper Series 7719, The World Bank.
    8. Ghesquiere, Francis & Mahul, Olivier, 2007. "Sovereign natural disaster insurance for developing countries : a paradigm shift in catastrophe risk financing," Policy Research Working Paper Series 4345, The World Bank.
    9. Eugene Gurenko & Olivier Mahul, 2003. "Combining Insurance, Contingent Debt, and Self-Retention in an Optimal Corporate Risk Financing Strategy," Working Papers hal-01952124, HAL.
    10. Clarke, Daniel J. & Dercon, Stefan, 2016. "Dull Disasters?: How planning ahead will make a difference," OUP Catalogue, Oxford University Press, number 9780198785576.
    11. Goes, Anne & Skees, Jerry R., 2003. "Financing Natural Disaster Risk Using Charity Contributions And Ex Ante Index Insurance," 2003 Annual meeting, July 27-30, Montreal, Canada 22188, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
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    14. Bevan,David L. & Adam,Christopher, 2016. "Financing the reconstruction of public capital after a natural disaster," Policy Research Working Paper Series 7718, The World Bank.
    15. Clarke, Daniel & Mahul, Olivier, 2011. "Disaster risk financing and contingent credit : a dynamic analysis," Policy Research Working Paper Series 5693, The World Bank.
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    Cited by:

    1. World Bank, 2020. "Catastrophe Insurance Programs for Public Assets," World Bank Publications - Reports 34440, The World Bank Group.
    2. Ilan Noy & Christopher Edmonds, 2019. "Increasing fiscal resilience to disasters in the Pacific," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 97(3), pages 1375-1393, July.
    3. Ionela-Daniela Găitan (Botezatu), 2020. "Comparative Analysis of Post-event Funding Sources," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(2), pages 333-339, December.
    4. Raj, Praveen Vijaya Raj Pushpa & Nagarajan, Bagathsingh & Schoenherr, Tobias & Ramkumar, M., 2023. "A comparative investigation of a seller’s disaster payment period policy," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 171(C).
    5. Joshua B. Horton & Penehuro Lefale & David Keith, 2021. "Parametric Insurance for Solar Geoengineering: Insights from the Pacific Catastrophe Risk Assessment and Financing Initiative," Global Policy, London School of Economics and Political Science, vol. 12(S1), pages 97-107, April.
    6. Adam, Christopher & Bevan, David, 2020. "Tropical cyclones and post-disaster reconstruction of public infrastructure in developing countries," Economic Modelling, Elsevier, vol. 93(C), pages 82-99.
    7. Sandrine Spaeter, 2021. "How to Reconcile Pandemic Business Interruption Risk With Insurance Coverage," Working Papers of BETA 2021-18, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.

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