Strategies and Financial Instruments for Disaster Risk Management in Latin America and the Caribbean

This technical paper investigates potential avenues for reducing economic losses resulting from natural hazards, and discusses ex ante and ex post issues affecting disaster risk management. It also assesses how both types of measures can be jointly used to reduce the economic impact of disasters on sovereign governments and the IDB. Opportunities and instruments for risk transfer, particularly at the higher layers of risk, are discussed in detail. The proposed risk management framework utilizes financial instruments to enable the government to transfer risk as potential losses begin to exceed its ability to cover them. To this end, this paper proposes a balanced risk management strategy, both for the borrowing member countries and the IDB, which includes specific components to address different layers of risk.