Latin American and Caribbean Governments Explore Innovative Catastrophe Risk Financing Amidst Growing Pressure
Governments across Latin America and the Caribbean are facing increasing pressure from natural catastrophes, which significantly impact public finances, infrastructure, and communities. These challenges are interconnected with public debt, low tax collection, and economic growth. To address this, countries in the region are actively exploring and implementing innovative risk transfer mechanisms, including both traditional and parametric insurance solutions. Mexico, for instance, has been a pioneer with its Natural Disaster Fund (FONDEN), established in the late 1990s, which has evolved to incorporate insurance and capital-market solutions. The goal is to enhance financial resilience and support faster recovery efforts after major events. Parametric insurance, in particular, offers quicker access to funds based on predefined parameters, bypassing lengthy physical loss assessments, which is crucial when immediate liquidity is needed for disaster response.
