Climate-related disasters are increasing in frequency and severity and both economic and human losses are climbing. Unfortunately, developing countries, which are the least equipped to deal with disasters, are often impacted the most. Over the past two decades, new financial tools have emerged to help developing countries cope with disaster. Sovereign parametric insurance is one of these tools and remains a key part of the disaster risk finance architecture. Three regional risk pools have been developed to provide sovereign parametric insurance to developing countries: CCRIF SPC (CCRIF), the African Risk Capacity (ARC), and the Pacific Catastrophe Risk Insurance Company (PCRIC). These pools have provided developing countries with numerous benefits including fast insurance payouts, tools to help identify and manage disaster risks, and platforms to foster political dialogue on disaster risk management. At the same time, questions remain around the limitations of the pools and their evolution going forward.
To shed light on these issues, the paper seeks to answer the following questions:
- To what extent are developing countries deploying multiple disaster risk financing instruments to cover various layers of disaster risk?
- To what extent are governments taking advantage of the disaster risk insurance solutions offered by CCRIF, ARC, and PCRIC and why?
- To what extent are disaster risk insurance pools supporting governments in their efforts to protect poor and vulnerable people?
The paper is based on an extensive literature review of policy, academic, and official documents and conversations with 75 stakeholders from over 40 organizations and governments. These conversations were held through semi-structured interviews and workshops in Washington, D.C. and London.