Key design considerations for flood risk pooling facilities at the sub-national level
Disaster or catastrophe risk pooling refers to the sharing of risk by entities facing common risk exposure to an individual hazard or set of hazards over a geographical area. Risk pooling members can gain risk diversification benefits such as lower premium costs while facilities based on parametric...
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Elsevier
2024-01-01
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| Series: | Climate Risk Management |
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| Online Access: | http://www.sciencedirect.com/science/article/pii/S2212096324000883 |
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| author | Kamleshan Pillay |
| author_facet | Kamleshan Pillay |
| author_sort | Kamleshan Pillay |
| collection | DOAJ |
| description | Disaster or catastrophe risk pooling refers to the sharing of risk by entities facing common risk exposure to an individual hazard or set of hazards over a geographical area. Risk pooling members can gain risk diversification benefits such as lower premium costs while facilities based on parametric insurance policies are able to provide timely post-disaster payouts to members. The topic of sub-national catastrophe risk pools is relatively unexplored. Sub-national risk pools are advantageous as they can overcome politicised issues of compromised sovereignty and joint decision-making while enhancing insurance access for smaller, rural sub-national authorities. This research represents a starting point on design considerations for developing a sub-national flood risk pool (SNFRP). The operation of an SNFRP may result in greater spatial correlation. This may affect the financial stability of SNFRPs or diminish the risk diversification benefits over time. The balancing of fully risk-based pricing and affordability is also likely to be a significant challenge for SNFRPs, especially those operating in emerging and developing economies (EMDE). Means-based subsidies can overcome this challenge; however, donor access may be limited. In addition to donor partnerships, SNFRPs require engagements with reinsurers and national government actors to assist with risk transfer and seed capitalisation, respectively. In EMDEs, an SNFRP focused on response and relief will likely be based on parametric insurance policies. Issues such as index selection, geographical basis risk, and data and modelling needs must be carefully considered during the design of flood parametric insurance policies. Geographic basis risk may be amplified in an SNFRP operating at smaller spatial scales as flood events are not restricted to the administrative boundaries of sub-national authorities. Other issues that could influence the implementation of a sub-national facility include gaining political buy-in; access to reinsurance markets; and risk reduction incentivisation. |
| format | Article |
| id | doaj-art-2f09728de78d4886b1fab6295fc922d2 |
| institution | Kabale University |
| issn | 2212-0963 |
| language | English |
| publishDate | 2024-01-01 |
| publisher | Elsevier |
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| series | Climate Risk Management |
| spelling | doaj-art-2f09728de78d4886b1fab6295fc922d22024-12-12T05:21:20ZengElsevierClimate Risk Management2212-09632024-01-0146100671Key design considerations for flood risk pooling facilities at the sub-national levelKamleshan Pillay0Corresponding author at: School of Geography, Archaeology and Environmental Studies, University of Witwatersrand, 1 Jan Smuts Avenue, Braamfontein 2000, Johannesburg, South Africa.; School of Geography, Archaeology and Environmental Studies, University of Witwatersrand, 1 Jan Smuts Avenue, Braamfontein 2000, Johannesburg, South AfricaDisaster or catastrophe risk pooling refers to the sharing of risk by entities facing common risk exposure to an individual hazard or set of hazards over a geographical area. Risk pooling members can gain risk diversification benefits such as lower premium costs while facilities based on parametric insurance policies are able to provide timely post-disaster payouts to members. The topic of sub-national catastrophe risk pools is relatively unexplored. Sub-national risk pools are advantageous as they can overcome politicised issues of compromised sovereignty and joint decision-making while enhancing insurance access for smaller, rural sub-national authorities. This research represents a starting point on design considerations for developing a sub-national flood risk pool (SNFRP). The operation of an SNFRP may result in greater spatial correlation. This may affect the financial stability of SNFRPs or diminish the risk diversification benefits over time. The balancing of fully risk-based pricing and affordability is also likely to be a significant challenge for SNFRPs, especially those operating in emerging and developing economies (EMDE). Means-based subsidies can overcome this challenge; however, donor access may be limited. In addition to donor partnerships, SNFRPs require engagements with reinsurers and national government actors to assist with risk transfer and seed capitalisation, respectively. In EMDEs, an SNFRP focused on response and relief will likely be based on parametric insurance policies. Issues such as index selection, geographical basis risk, and data and modelling needs must be carefully considered during the design of flood parametric insurance policies. Geographic basis risk may be amplified in an SNFRP operating at smaller spatial scales as flood events are not restricted to the administrative boundaries of sub-national authorities. Other issues that could influence the implementation of a sub-national facility include gaining political buy-in; access to reinsurance markets; and risk reduction incentivisation.http://www.sciencedirect.com/science/article/pii/S2212096324000883Adaptation FinanceClimate RiskFloodRisk PoolingSub-national Governments |
| spellingShingle | Kamleshan Pillay Key design considerations for flood risk pooling facilities at the sub-national level Climate Risk Management Adaptation Finance Climate Risk Flood Risk Pooling Sub-national Governments |
| title | Key design considerations for flood risk pooling facilities at the sub-national level |
| title_full | Key design considerations for flood risk pooling facilities at the sub-national level |
| title_fullStr | Key design considerations for flood risk pooling facilities at the sub-national level |
| title_full_unstemmed | Key design considerations for flood risk pooling facilities at the sub-national level |
| title_short | Key design considerations for flood risk pooling facilities at the sub-national level |
| title_sort | key design considerations for flood risk pooling facilities at the sub national level |
| topic | Adaptation Finance Climate Risk Flood Risk Pooling Sub-national Governments |
| url | http://www.sciencedirect.com/science/article/pii/S2212096324000883 |
| work_keys_str_mv | AT kamleshanpillay keydesignconsiderationsforfloodriskpoolingfacilitiesatthesubnationallevel |