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A New Kind of First Responder

Munich Re and rival Swiss Re are designing policies that insure against Third World disasters
Bangladesh:  In one approach, charities sell “catastrophe bonds“
Bangladesh: In one approach, charities sell “catastrophe bonds“ Rafiquar Rahman / Reuters

Natural disasters are on the rise. In 2007 there were 950 around the globe, according to insurer Munich Re, up 12% over 2006. Munich attributes much of the jump to climate change, so even more could be in the offing. In developed countries, insurance helps many recover, but in poorer nations that kind of backstop has been largely unaffordable. Instead, each catastrophe prompts a fresh round of fund-raising, and recovery efforts bog down as donations trickle in.

Now a new approach is emerging that could provide for a rapid infusion of cash when disaster strikes. Munich Re and its rival, Swiss Re, (RUKN) are designing ways to insure developing regions against disasters such as earthquakes, drought, flooding, or severe storms. With these new tools, charities and even governments arrange for policies that will pay out promptly. "Insurance makes sense because precautions are a cheaper, better alternative than scrambling for help after the fact," says Maria Blair, associate vice-president of the New York-based Rockefeller Foundation, which is exploring supporting this type of coverage for parts of sub-Saharan Africa and selected cities in Asia as part of its $70 million climate change initiative. In January the Bill & Melinda Gates Foundation awarded $34 million to the U.N.'s International Labour Organization, in part for such pilot insurance products.