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This paper aims to assist policy makers interested in establishing or strengthening financial strategies to increase the financial response capacity of developing country governments in the aftermath of natural disasters, while protecting their long-term fiscal balance. Contingent credit is shown to increase the ability of governments to self-insure by relaxing their short-term liquidity constraints. In many situations, contingent credit is most effectively used to facilitate risk retention for middle layers, with reserves used for bottom layers and risk transfer (for example, reinsurance) for top layers. Discussions with governments on the optimal use of contingent credit instruments as part of a sovereign catastrophe risk financing strategy can be guided by the output of a dynamic financial analysis model specifically developed to allow for the provision of contingent credit, in addition to reserves and/or reinsurance. This model is illustrated with three country case studies: agricultural production risks in India; tropical cyclone risk in Fiji; and earthquake risk in Costa Rica.

Access to Finance --- Bankruptcy and Resolution of Financial Distress --- Contingent Credit --- Debt Markets --- Developing Countries --- Disaster Risk Financing --- Dynamic Financial Analysis --- Finance and Financial Sector Development --- Financial Intermediation --- Insurance --- Insurance & Risk Mitigation --- Natural Disasters --- Private Sector Development

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In recent years, typhoons have struck the Philippines and Vanuatu; earthquakes have rocked Haiti, Pakistan, and Nepal; floods have swept through Pakistan and Mozambique; droughts have hit Ethiopia, Kenya, and Somalia; and more. All led to loss of life and loss of livelihoods, and recovery will take years. One of the likely effects of climate change is to increase the likelihood of the type of extreme weather events that seems to cause these disasters. But do extreme events have to turn into disasters with huge loss of life and suffering? 'Dull Disasters?' harnesses lessons from finance, political science, economics, psychology, and the natural sciences to show how countries and their partners can be far better prepared to deal with disasters.

Emergency management. --- Crisis management. --- Organizational resilience. --- Disaster victims. --- Victims of disasters --- Resilience of organizations --- Crises --- Management of crises --- Consequence management (Emergency management) --- Disaster planning --- Disaster preparedness --- Disaster prevention --- Disaster relief --- Disasters --- Emergencies --- Emergency planning --- Emergency preparedness --- Management --- Planning --- Preparedness --- Prevention --- Victims --- Organizational change --- Problem solving --- Conflict management --- Public safety --- First responders --- Emergency management --- extreme event --- time inconsistency --- natural disaster --- disaster risk finance --- pandemic --- planning --- behavioural psychology --- commitment device --- politics of disaster relief --- Decision-making --- Insurance --- Reinsurance --- Risk management

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India's crop insurance program is the world's largest with 25 million farmers insured. However, issues in design, particularly related to delays in claims settlement, have led to 95 million farmer households not being covered, despite significant government subsidy. To address this and other problems, the Government of India is piloting a modified National Agricultural Insurance Scheme, a market-based scheme with involvement from the private sector. Compared with the existing scheme, the new program has a design that can offer more timely, claim settlement, less distortion in the allocation of government subsidies and cross-subsidies between farmer groups, and reduced basis risk. Implementation and technical challenges lie ahead which can be addressed but will require a comprehensive strategy, innovative solutions, and timely roll out. This paper describes and analyzes both programs, and discusses lessons learned in developing and implementing the new program.

Agriculture --- Area yield crop insurance --- Climate Change Economics --- Debt Markets --- Developing countries --- Emerging Markets --- Finance and Financial Sector Development --- Hazard Risk Management --- Insurance & Risk Mitigation --- India

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Agricultural index insurance offers the promise of an affordable and sustainable insurance product for farmers that can help reduce their vulnerability to aggregate agricultural shocks such as large-scale drought or flooding. However, index insurance provides claim payments based on a trigger that is only imperfectly correlated with losses. This implies that it carries basis risk: it may provide claim payments in years when there are no losses, and no claim payments in years when there are losses. The impact of index insurance on poverty outcomes is highly sensitive to the degree to which the product offers reliable protection. Offering unreliable index insurance may lead to high reputation risk for donors, governments, and the private sector. This study proposes to measure the reliability of index insurance in terms of two policy objectives that stakeholders may have when offering index insurance: the extent to which the insurance captures losses caused by the peril covered by the contract (insured peril basis risk) and the extent to which the insurance covers losses from agricultural production (production smoothing basis risk). For both types of basis risk two indicators are proposed: the probability of catastrophic basis risk and the catastrophic performance ratio. Donors, governments, and insurers can use the proposed monitoring indicators without much prior technical knowledge. Although the indicators specifically focus on agricultural index insurance for low-income farmers, they can be applied to any context where payments are provided based on indices that are correlated with losses.

Agriculture --- Rural development

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The weather index insurance market in India is the world's largest, having transitioned from small-scale and scattered pilots to a large-scale weather based crop insurance program covering more than 9 million farmers. This paper provides a critical overview of this market, including a review of indices used for insurance purposes and a description and analysis of common approaches to design and ratemaking. Products should be designed based on sound agronomic principles and further investments are needed both in quantifying the level of basis risk in existing products, and developing enhanced products with lower basis risk. In addition to pure weather indexed products, hybrid products that combine both area yield and weather indices seem promising, with the potential to combine the strengths of the individual indices. A portfolio approach to pricing products, such as that offered by Empirical Bayes Credibility Theory, can be significantly more efficient than the standalone pricing approaches typically employed in the Indian market. Legislation for index insurance products, including consumer protection legislation, should be further enhanced, for example by requiring disclosure of claim payments that each product would have made in the last ten years. The market structure for weather based crop insurance products could better reward long-term development of improved product designs through product standardization, longer term contracts, or separating the roles of product design and delivery.

Agriculture --- Bankruptcy and Resolution of Financial Distress --- Climate Change Economics --- Crop insurance --- Debt Markets --- Developing countries --- Finance and Financial Sector Development --- Hazard Risk Management --- Insurance & Risk Mitigation --- Pricing --- Product design --- Weather index insurance --- India