Multi-country pooling schemes for the financing and transfer of climate-related disaster risk: a comparative overview

The impacts of climate change and the increasing loss and damage resulting from weather-related extreme events continue to pose critical challenges to governments across the world. With a view to addressing these issues, some countries have decided to join forces in the development of risk-sharing platforms that allow for more effective access to global risk transfer markets, taking advantage of the positive effects of risk pooling. This chapter discusses from a comparative viewpoint and from a legal and public policy perspective three multi-country disaster risk transfer and financing schemes, namely: the African Risk Capacity (ARC), the Carribean Catastrophe Risk Insurance Facility (CCRIF), and the Pacific Catastrophe Risk Insurance Company (PCRIC). The multi-country schemes analysed in this chapter use parametric risk transfer tools. These instruments make payments based not on an assessment of the individual loss, but rather on measures of a parametric index that is assumed to proxy actual losses. Basing payouts on such an objective index allows for timely payments, without relying on potentially lengthy and subjective loss assessments or evidence of incurred costs. Parametric approaches can be used with all risk transfer instruments and contingency financing approaches.