Page - 489 - in Loss and Damage from Climate Change - Concepts, Methods and Policy Options

21 InsuranceasaResponse toLossandDamage? 489 Lacking insurance, vulnerable households andother local actors have tradition- allyfinancedpost-disaster recoverywithacombinationof savingsandcredit, infor- mal kinship arrangements, government relief and international donor support. Sav- ings can take the form of stockpiles of food, grains, seeds andmarketable assets, whichserve tosmoothconsumptionduringcrises.Themostcommonformofassis- tance is remittances, which aremore than three times the size of official develop- ment assistance (WorldBank 2016), and can be a significant contribution to post- disasterrecovery.Banks,insurersandothermonetaryfinancialinstitutions(MFIs),as intermediary-scaleactors,canalsoprotect theirpost-disaster liquiditybypurchasing reinsurance, relyingonbail outs from thegovernment, or support from institutions like theAfricanEmergencyLiquidityFacility (OMTRIX2005)or theWorldBank. Governments as national operators can meet their obligations to repair public infrastructure and support needy householdswith ex post and ex ante instruments. Typically, and as detailed inTable 21.2, public authorities seekfinancing after dis- asters occur, for instance, by issuing tax increases, re-allocating funds fromother budgeted activities, or borrowing through issuing bonds. Governments of highly exposed countries may also rely on assistance from the international community. An example of the latter is the significant support provided by theWorld Bank, andinEuropetheEuropeanUnionSolidarityFundprovidespost-disastersupport to governments to support their recovery (Hochrainer-Stigler et al. 2017). Inaddition to theseexpost instruments,governments increasinglyanticipatedis- aster events with ex ante financing or risk transfer as shown in Table 21.2. Risk financing at sovereign level includes awide rangeof tools such asnational reserve funds,sovereigninsurance(alsoofferedthroughregionalpools),andcreditandcap- ital market products, such as catastrophe bonds, where bond purchasers agree to forfeit interest or principle if a pre-definedhazardor disaster occurs (seeCardenas etal.2007).Suchacatastrophebond(150MillionUSD),forexample,wastriggered bythe2017Oaxacaearthquake(ARTEMIS2017b).Insurersmakeuseofothertypes Table21.2 Financing instruments forprotectinggovernmentbudgets Financial andbudgetary instruments Goal Exante instrument [arrangedbeforeadisaster] Expost instrument [arrangedafteradisaster] Risk retention [changinghoworwhenone pays] Contingency fundor budget allocation Budget reallocation Lineofcontigent credit Tax increase Post-disaster credit Risk transfer [removing isk fromthe balancesheet] Traditional insuranceor reinsuranceIndexed insurance, reinsurance,orderivatives Discretionarypost-disaster relief Capitalmarket instruments SourceClarkeandDercon (2016)