Mechanisms for financing the costs of disasters

This paper provides an overview of disaster risk financing mechanisms, both traditional instruments that share the costs of disastrous events after they happen and ex ante instruments, some innovative, that contractually transfer risks before the events occur. The focus is on developing countries and the most vulnerable within those countries. As recent novel instruments, we describe index-based insurance for farmers and herders, national insurance programs, sovereign instruments for governments and regional risk insurance pools. We present evidence on their benefits, costs and risks, and, finally, address the question: What financial-protection actions could be taken in the next ten years that might reduce the negative impact of disasters occurring up to 2040?

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