Refocusing Disaster Aid

Abstract

With new modeling techniques for estimating and pricing the risks of natural disasters, the donor community is now in a position to help the poor cope with the economic repercussions of disasters by assisting before they happen. Such assistance is possible with the advent of novel insurance instruments for transferring catastrophe risks to the global financial markets. Donor-supported risk-transfer programs not only would leverage limited disaster-aid budgets but also would free recipient countries from depending on the vagaries of postdisaster assistance. Both donors and recipients stand to gain, especially because the instruments can be closely coupled with preventive measures.