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Catastrophe Risk Financing in Developing Countries : Principles for Public InterventionPublic intervention in catastrophe insurance markets, supported by the donor community and the World Bank, should be country specific. Low-income countries, where the domestic non-life insurance market is undeveloped, should focus in the short term on the development of sovereign catastrophe insurance solutions and the promotion of public goods related to risk market infrastructure. These countries are usually not mature enough for the promotion of catastrophe insurance pools for private homeowners. Middle-income countries, where the domestic non-life insurance market is more developed, should help the private insurance industry offer market-based catastrophe insurance solutions to homeowners and to small and medium enterprises, including the agricultural sector. This book offers a framework, with lessons drawn from recent experience, guiding principles for public intervention and potential roles for donors and International Financial Institutions (IFIs). These lessons are expected to be used in developing affordable, effective and sustainable country-specific catastrophe insurance programs.
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Managing Agricultural Risk at the Country Level : The Case of Index-Based Livestock Insurance in MongoliaThis paper describes the index-based
 livestock insurance program in Mongolia designed in the
 context of a World Bank lending operation with Government of
 Mongolia and implemented on a pilot basis in 2005. This
 program involves a combination of self-insurance by herders,
 market-based insurance, and social insurance. Herders retain
 small losses, larger losses are transferred to the private
 insurance industry, and extreme or catastrophic losses are
 transferred to the government using a public safety net
 program. A syndicate pooling arrangement protects
 participating insurance companies against excessive insured
 losses, with excess of loss reinsurance provided by the
 government. The fiscal exposure of Government of Mongolia
 toward the most extreme losses is protected with a
 contingent credit facility. The insurance program relies on
 a mortality rate index by species in each local region. The
 index provides strong incentives to individual herders to
 continue to manage their herds so as to minimize the impacts
 of major livestock mortality events; individual herders
 receive an insurance payout based on the local mortality,
 irrespective of their individual losses. This project
 offered the first opportunity to design and implement an
 agriculture insurance program using a country-wide
 agricultural risk management approach. During the first
 sales season, 7 percent of the herders in the three pilot
 regions purchased the insurance product.
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Innovation in Disaster Risk Financing for Developing CountriesThis report aims to advance the dialogue on creative, forward-looking solutions for developing countries by presenting recent innovations on disaster risk financing and insurance developed by the private markets as well as the international donor community, from the macro (government) level down to the micro (household) level. It discusses how these innovations can be adapted and implemented in developing countries to better protect efficiently those countries against the financial consequences of natural disasters. Section one provides an introduction to the economic and fiscal impacts of natural disasters on developing countries. Section two examines examples of innovation in the private insurance and capital markets that may have applications in sovereign disaster risk financing for developing countries. Section three examines how innovations coming out of mature property catastrophe risk insurance (PCRI) markets could serve in low and middle-income countries. Section four considers how innovation is taking seed in creative disaster micro insurance programs in low- and middle-income countries. Section five wraps up the report with brief concluding remarks.