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Natural Hazards

, Volume 64, Issue 1, pp 55–72 | Cite as

Increasing the resilience of financial intermediaries through portfolio-level insurance against natural disasters

  • Benjamin Collier
  • Jerry Skees
Original Paper

Abstract

Financial intermediaries [FIs] in developing and emerging economies are poorly equipped to manage natural disasters. These events create losses for FIs, eroding capital reserves and compromising their ability to lend. Portfolio-level insurance against disasters can improve FI management of these events. We model microfinance intermediaries [MFIs] exposed to severe El Niño in Peru that can now insure against this disaster risk. Our analyses suggest that insurance allows these lenders to manage this risk more efficiently and effectively. These risk management improvements can translate into better financial performance, expansion of banking service outreach, lower interest rates, and reduced volatility in access to credit. Based on these analyses, a large MFI in Peru with which we collaborated is now managing its disaster risk using El Niño insurance.

Keywords

Natural disasters Financial intermediation Parametric insurance Access to credit and savings El Niño Economic growth Peru Poverty alleviation Microfinance Index insurance Developing economies 

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Copyright information

© Springer Science+Business Media B.V. 2012

Authors and Affiliations

  1. 1.University of KentuckyLexingtonUSA

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