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Cat Bond Issuance Since 1996: Still Mainly for Rich Country Risks

“Cat” bonds are effectively a cheaper source of large-scale insurance coverage against clearly measured risks like earthquakes, storms, or even disease outbreaks. Generally, though, coverage hasn’t trickled down to the poorer and most at-risk countries—precisely those which are most vulnerable when aid fails to arrive or arrives piecemeal. Less than a twentieth of the total value of these products issued since 1996 covers risks in countries that the World Bank classifies as upper middle-income or below (places where income per capita is $12,475 or lower). They have mainly covered risks in the US and other high income countries (HICs).

Damages Mainly in Rich Countries vs. Deaths in Poor Ones - 1980-2010

Damages Mainly in Rich Countries vs. Deaths in Poor Ones, 1980-2010

From a financial perspective, disasters appear to have been kind to developing countries. That makes sense: highways in Tokyo, for example, cost more than roads in Sri Lanka. But the costs in terms of human lives are dramatically higher in developing countries. That makes humanitarian emergencies and natural disasters highly regressive—their toll falls disproportionately on the poorest and most vulnerable. 

The Humanitarian Financing Deficit is Growing Quickly

This chart compares agencies’ requests for funding through humanitarian-response plans. Underinvestment in resilience and increasing costs due to late response show up as a rising deficit, as calls on donors’ humanitarian budgets go unmet. Since response plans are filed after crises develop, funding is late almost by design. And it arrives in the straitjacket of annual disbursements, despite the multi-year nature of many crises