Developing risk assessment to support sovereign risk financing and risk transfer

This document is the tenth in a series of special topics for consideration, as part of the Words into Action Guidelines on National Disaster Risk Assessment published by UNISDR. This section provides a general introduction to sovereign risk financing and risk transfer schemes as a part of a comprehensive risk management strategy to reduce and prevent economic losses. To determine the required scope and type of risk financing or risk transfer in a country, a government should first understand the risk context through national risk assessment.

Risk financing and risk transfer measures (such as insurance) provide protection cover and can distribute or pool the residual economic risk. A number of recent studies indicate that, following a major disaster, countries with lower levels of insurance penetration experience larger declines in economic output and more considerable fiscal losses than those with higher levels of insurance penetration.