Forecasting hazards, averting disasters

4.2   Insurance and contingent finance 

Another option for FbA involves market-based 

mechanisms (i.e. not public funds) such as insurance or 

contingent finance. These could pay out before disaster 

impacts have resulted in losses for individual policy-

holders or businesses, or have led to credit defaults 

for cooperatives, enterprises, banks or microfinance 

institutions (MFIs). There is as yet limited experience 

with integrating hazard forecast-based triggers into such 

risk financing and transfer mechanisms. One exception 

was an El Niño insurance product tested in Peru between 

2012 and 2014, which released funds to MFIs and 

cooperatives based on forecasts, encouraging them to 

take anticipatory action and to increase lending before, 

during and after a disaster, when people were in need of 

additional resources to prepare and respond. 

Other insurance and contingent finance initiatives that 

are already using triggers to support early post-disaster 

response could be expanded to include more preventative 

and mitigative actions in the future. The African and 

Asian Resilience in Disaster Insurance Scheme (ARDIS), 

launched in 2018 by VisionFund International, Global 

Parametrics and the InsuResilience Investment fund, will 

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be implemented in Cambodia, Kenya, Malawi, Mali, 

Myanmar and Zambia in its first year. It will support 

post-disaster recovery lending by providing microfinance 

institutions with access to credit and insurance-type 

payouts. Both financing instruments are linked to either 

a drought or a windstorm index that differs between 

countries. Disaster risk financing initiatives targeted 

at governments and NGOs, such as ARC’s sovereign 

drought insurance and ARC Replica drought coverage, 

might represent a further opportunity to expand into 

even earlier action.