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index insurance

Index insurance is having a development impact where it’s needed most

Ceyla Pazarbasioglu's picture
Also available in: العربية | Français | Español

Many of the world’s populations are vulnerable to climate shocks – to drought, flooding, irregular rainfall and natural disasters. For these countries, cities and communities, index-based insurance is a critical risk-management tool which allows victims of such shocks to continue to have access to finance and to build resilience against future risks.

Index, or parametric, insurance pays out benefits based on a pre-determined index for the loss of assets and investments as a result of weather or other catastrophic events. In contrast, traditional insurance relies on  assessments of the actual damage. 

Investing in pre-crisis financial risk management eases post-disaster recovery needs

Gloria M. Grandolini's picture
Also available in: Français | العربية | Español
Young girl in an evacuation center, 2009. Philippines. Photo: Jerome Ascano / World Bank

Since natural disasters can strike anywhere and anytime, making far-sighted preparations is much more effective than scrambling to respond to a crisis. I recognized this after Hurricane Mitch ravaged Honduras and my grandmother had to be evacuated because the local river swelled to the second floor of her home.
 
As climate change intensifies extreme weather events across much of the planet, countries are seeking the World Bank Group’s support to improve both their physical and financial resilience to disasters.
 
We are increasingly working with governments to devise sound financial planning and risk management before a disaster strikes, not just to assemble financing to help countries recover in its wake.

Market-based instruments – such as insurance -- can act as shock absorbers in case of natural disaster, helping countries avoid the worst of a crisis’ financial impact.