Natural disasters strike rich countries as well as needy ones, but the trail of devastation they leave behind is usually far greater in poor places.
Worse, insurance payouts cover a much larger chunk of the costs of recovery in rich countries than in poor ones, where few individuals or companies take out disaster cover. Most of the burden of financing reconstruction falls on foreign governments and multilateral agencies. It will be no different in Haiti after the earthquake that struck this month.
Developing countries have some options to help them manage the fallout from natural disasters. The World Bank helped the Mexican government raise $290 million in October by placing "catastrophe bonds," which pay investors generous yields against the loss of their principal in the event that disaster strikes.
Until now such bonds have largely been the preserve of rich-country issuers: In 2009 Munich Re estimates that 80 percent of coverage issued was to cover risks in the United States.
But Francis Ghesquiere of the World Bank doubts that a country as poor as Haiti, with no experience on international bond markets, will start issuing catastrophe bonds.
Risk-sharing mechanisms can enable the poorest nations to pool their insurance-buying power. Haiti is getting a payout of around $8 million from the Caribbean Catastrophe Risk Insurance Facility (CCRIF), which came into being in 2007.
The CCRIF has a fund made up of contributions from donors and member countries, which allows it to cover payouts of up to $10 million itself and has additional capacity of $110 million obtained through international reinsurance markets.
Payouts are based simply on the severity of the disaster (in Haiti's case, the magnitude of the earthquake), and the amount of coverage purchased, and are paid out in two weeks. The money is intended to ensure that lack of cash does not hamper basic government functions.
