Increasing the resilience of financial intermediaries through portfolio-level insurance against natural disasters

Benjamin Collier and Jerry Skees

Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, 2012, vol. 64, issue 1, 55-72

Abstract: Financial intermediaries [FIs] in developing and emerging economies are poorly equipped to manage natural disasters. These events create losses for FIs, eroding capital reserves and compromising their ability to lend. Portfolio-level insurance against disasters can improve FI management of these events. We model microfinance intermediaries [MFIs] exposed to severe El Niño in Peru that can now insure against this disaster risk. Our analyses suggest that insurance allows these lenders to manage this risk more efficiently and effectively. These risk management improvements can translate into better financial performance, expansion of banking service outreach, lower interest rates, and reduced volatility in access to credit. Based on these analyses, a large MFI in Peru with which we collaborated is now managing its disaster risk using El Niño insurance. Copyright Springer Science+Business Media B.V. 2012

Keywords: Natural disasters; Financial intermediation; Parametric insurance; Access to credit and savings; El Niño; Economic growth; Peru; Poverty alleviation; Microfinance; Index insurance; Developing economies (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (14)

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Working Paper: Increasing the Resilience of Financial Intermediaries through Portfolio-Level Insurance against Natural Disasters (2012)
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DOI: 10.1007/s11069-012-0227-0

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