Evaluating Sovereign Disaster Risk Finance Strategies: A Framework

Daniel J. Clarke, Olivier Mahul, Richard Poulter, Tse-Ling Teh

Research output: Contribution to journalArticleAcademicpeer-review

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.

Original languageEnglish
Pages (from-to)565-584
Number of pages20
JournalGeneva Papers on Risk and Insurance - Issues and Practice
Volume42
Issue number4
DOIs
Publication statusPublished - Oct 2017

Keywords

  • disaster risk financing
  • natural hazards
  • financial analysis
  • insurance
  • contingent credit
  • INSURANCE
  • BONDS

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