Disaster protection: How public-private insurance programs can make low-income countries more resilient

The growing toll of global disaster and climate losses seems inescapable. The year 2024 was another record-breaking year, with global disaster losses estimated at over $350 million.

In an increasingly risky world, developing country governments must juggle the difficult tradeoff of protecting their people and economies from the shocks of today, while trying to invest for the future and better prepare for the crises of tomorrow.

Development brings new risk simply by adding more assets to exposure. As billions of dollars in infrastructure investments flow to developing countries to help meet their development needs, it is imperative that we account for risks and build in a resilient way. And there is much to do: satellite imagery shows that today, cities are growing faster in flood zones than in safe areas.

But even with more effort on prevention, there is always a residual risk, requiring emergency management and contingency planning, as well as disaster risk finance and insurance (DRFI) solutions to facilitate and accelerate reconstruction. Yet, the insurance protection gap – the portion of disaster losses not covered by insurance – exceeds 90% in developing countries on average. In other words, less than one-tenth of disaster losses in poorer nations are insured.  In these contexts, Public-Private Insurance Programs (PPIPs) offer a promising solution.

Bridging this gap in protection is critical to protect lives and livelihoods. A new World Bank policy paper – looks at the role of public-private collaboration in helping to close the protection gap even in low-income countries with no well-established insurance sector. These programs mobilize public and private resources and expertise to deliver scalable, adaptive, and financially sustainable DRFI solutions.

PPIPs: One Concept, Many Forms

Reducing the disaster protection gap in EMDEs requires a two-pronged approach: scaling up PPIPs as part of comprehensive strategies and investing in strengthening domestic insurance markets. The power of PPIPs lies in their ability to adapt over time to meet evolving country needs. Their design depends on the policy objectives of the government—who they want to protect and from what—the financial and institutional capacity of the government, and the maturity of its domestic insurance and financial markets.

What we often see in low-income countries with nascent (or non-existent) insurance markets, is that governments provide a form of social insurance, for example through social protection programs. In many cases, these programs are not yet backed by market-based financing instruments, but they could be.

For example, in Malawi the national safety net is able to scale up in a crisis. A contingency fund provides emergency cash transfers in response to moderate droughts, and a sovereign risk transfer instrument covers the cost of larger scale-ups for more severe droughts. During the 2023–24 drought, the program delivered $11.9 million in emergency support—funded by a combination of contingency financing and an insurance payout—reaching over 140,000 households with timely cash assistance. This is the first time an insurance product has directly backed a shock-responsive component for a social protection program in Africa, and it may pave the way for similar DRFI initiatives in other countries.

In countries with a more advanced insurance market and better capacity, governments could leverage the domestic insurance market to develop dedicated programs to protect citizens, businesses, or government assets.

In Indonesia, the government developed a program to protect public assets. The central government transferred risks related to almost 11,000 public buildings to the insurance market – through a consortium of more than 50 domestic insurers that provide coverage, backed by international reinsurance. The payouts from Indonesia’s State Assets Insurance Program (ABMN) enable responsible ministries to repair assets and minimize public service disruptions, helping to reduce fiscal pressure.

The reality is that multiple PPIPs usually coexist to cover different populations or different risks - the balance between instruments depends on the level of development of the insurance market and the financial capacity of the government. Morocco for example, has introduced a dual system that provides protection to both insured and uninsured populations. The government has made catastrophe risk coverage mandatory as an extension of guarantee for all property and casualty insurance policies. At the same time, a public solidarity fund (Solidarity Fund against Catastrophic Events [FSEC]) provides protection to the many households that are still uninsured. In the aftermath of the 2023 Al-Haouz earthquake, the FSEC unlocked around US$300 million to cover eligible losses, of which US$275 million came from the FSEC (parametric) reinsurance policy.

There is no single formula for designing successful PPIPs in emerging economies. Across the board though, experience shows that well-functioning public-private collaboration for catastrophe risk insurance requires going beyond single instruments, thinking strategically about short- and long-term priorities, and nurturing government vision and ownership. This requires coordinated efforts from: 

• Governments, to embed PPIPs into national DRFI strategies, strengthen legal and supervisory frameworks, and champion risk management across sectors. 

• Donors and development partners, to support government vision and ownership through sustained technical assistance, capacity building, and seed funding to launch and scale PPIPs. 

• Private insurers and reinsurers, to develop inclusive products, share risk data, and collaborate with public authorities to extend coverage. 

• Civil society and the general public, to advocate for transparent, resilient financing and hold stakeholders accountable. 

Providing people and businesses with the financial instruments they need to manage risk is a key part of the broader resilience agenda. It is also a solution to mobilize private finance in support of a more resilient economy. With growing climate and disaster losses recorded year after year, the current disaster protection gap is an increasing barrier to investment and job creation, but also a missed opportunity to accelerate economic growth and development.

The path forward is clear: PPIPs can help countries protect lives, livelihoods, and public assets—even where insurance markets are still emerging.