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25 November 2015
20151448409600000
No. 010

Index-based Risk Financing and Development of Natural Disaster Insurance Programs in Developing Countries

Sommarat Chantarat

Abstract

This paper explores innovations in index-based risk transfer products (IBRTPs) as a means to address important insurance market imperfections that have precluded the emergence and sustainability of formal insurance markets in developing countries, where uninsured natural disaster risk remains a leading impediment of economic development. Using a combination of disaggregated nationwide weather, remote sensing and household livelihood data commonly available in developing countries, the paper provides analytical framework and empirical illustrations on how to design nationwide and scalable IBRTP contracts, to analyse hedging effectiveness and welfare impacts at the micro level and to explore cost effective risk-financing options. Thai rice production is used in our analysis with the goal of extending the methodology and implications so as to enhance the development of national and regional disaster risk management in Asia.

Sommarat Chantarat
Sommarat Chantarat
Puey Ungphakorn Institute for Economic Research
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JEL: D81G22Q12Q14Q18
Tags: natural disaster insuranceagricultural insurancerisk poolingsecuritizationrice productionthailand
The views expressed in this workshop do not necessarily reflect the views of the Puey Ungphakorn Institute for Economic Research or the Bank of Thailand.
Sommarat Chantarat
Sommarat Chantarat
Puey Ungphakorn Institute for Economic Research

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