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Economy

How Cities Can Avert Financial Ruin After a Natural Disaster

As climate change leads to more and worse storms, the growing catastrophe bond market provides some reassurance.
A water tower in Florida City, Florida, remains standing over beside the damage caused by Hurricane Andrew, in 1992.
A water tower in Florida City, Florida, remains standing over beside the damage caused by Hurricane Andrew, in 1992.AP Photo/Ray Fairall

When a natural disaster strikes a city, the government has to jump into action. There might be fires to put out, people to pull out of rubble, and water to pump out of tunnels, not to mention relocation and rebuilding efforts that come after the fact. That all takes money, and if the damage isn’t insured, the city will have to pay for it somehow.

It turns out the damage very rarely is properly insured. Between 1980 and 2004, only 1 percent of natural disaster losses in developing countries were insured, as were only 30 percent in developed nations, according to the World Bank. These damages make for huge unanticipated drains on local budgets, all the more pressing when economic activity has slowed down due to the disaster itself.