Natural Disasters Financial Risk Management : Technical and Policy Underpinnings for the Use of Disaster-Linked Financial Instruments in Latin America and the Caribbean

The Latin American and Caribbean region is highly exposed to natural disasters. The social and economic impact of these events has been historically very significant and it is showing an increasingly growing trend. During the first quarter of 2010, this unfortunate reality was evidenced with the Haiti and Chile earthquakes. Preliminary impact assessments indicate that the powerful January 2010 Port-au-Prince earthquake killed more than 225,000 people and caused damages and losses of about US$8 billion dollars (about 120 percent of last year GDP). This technical note presents the current Inter-American Development Bank Strategic Approach to catastrophe risk financing and discusses the technical and economic underpinnings for the proposed disaster-linked financial instruments. The paper considers the accumulated stock of knowledge about disaster risk management over the past decade and discusses how it is being deployed effectively in the region by the Bank.