‘Resilience Bonds’: A Secret Weapon Against Catastrophe

Resilience bonds could help places vulnerable to natural disasters, like Mexico, better prepare for catastrophe - not just help clean up after it. (Credit: Alamy Stock Photo)

The costs of natural disasters are becoming too much to bear – and it’s driving up premiums no matter where you live. The solution may be a transformative type of insurance never seen before.

bbc.com - by Amanda Ruggeri - May 16, 2017

 . . . People will have to shift their entire thinking about how disaster recovery is funded – and by whom, experts say. “There’s a perception that, following a disaster, the federal government’s role is to make you whole and rebuild homes and infrastructure and community at the federal taxpayer’s expense. And that is simply not true,” Medlock says. “There are limits to what the federal government can – and should – do.”

 . . . Enter a new idea that could transform not only the global economy, but how disasters affect us: a resilience bond. As well as guaranteeing help to communities after a catastrophe, it would help fund projects and strategies they need to become less vulnerable to begin with . . .

 . . . A resilience bond is “an innovative variation on the cat bond”, says Medlock. It would work like this: imagine City X wants to build higher seawalls or fix its levee, but doesn’t have access to funds. When it goes to buy a multiyear, parametric cat bond for flooding, the insurer takes the expected impact of that planned investment into account and lowers the premium the city has to pay. With that cost saving in the budget, City X now has the money to fund its seawalls and levee – even if no disaster ever occurs.

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