RISK TRANSFER

Risk transfer, defined as shifting the responsibility or burden for disaster loss to another party through legislation, contract, insurance or other means, can play a key role in helping to manage natural hazard risk and mitigate or minimise disaster losses. As the international community places increasing emphasis on disaster risk reduction, there is growing interest in the potential of risk financing solutions, of which risk transfer is a major component, as part of an overall disaster risk management strategy. Recent developments in this field include the use of a range of risk transfer mechanisms such as catastrophe bonds, catastrophe pools, index-based insurance and micro-insurance schemes. Social protection programmes such as safety nets and calamity funds can also provide effective financial instruments for managing risk and dealing with natural disaster shocks.

ProVention promotes the use of risk transfer as an effective element of disaster risk management. Currently, whereas in high-income countries about a third of natural disaster losses are insured, less than 3% of households and businesses have catastrophe insurance in developing countries (Munich Re, 2005). A key concern for ProVention, therefore, remains whether and how the poor in developing countries can have access to affordable and viable risk transfer mechanisms, such as insurance. It is also important to examine to what extent such risk transfer mechanisms provide incentives for risk reduction measures.

This section is intended to provide links to useful resources on the subject of risk transfer for disaster reduction in developing countries including tools, methodologies and mechanisms being developed by ProVention partners and others.