Risk Transfer for Populations in Precarious Urban Environments

Abstract

This study explores risk transfer options that precarious and marginal urban communities could use to protect themselves from future damages and losses generated by socio-natural hazards and disasters at the individual and community levels. The design is framed within an evidence-based disaster risk reduction (DRR) strategy and follows the case study research approach. We analyze the 2018 Neighborhood Approach for DRR programming evaluation carried out in four Latin American cities’ informal settlements and review relevant risk transfer experiences aimed at vulnerable populations. We calculate the pure risk premium for the four cases selected, using a previous catastrophe risk assessment for earthquakes and landslides. We propose three risk transfer options based on our analysis: (1) voluntary collective insurance; (2) structural reinforcement with a comprehensive housing insurance; and (3) hybrid parametric insurance. Risk transfer mechanisms conventionally focus on residual risk management. Here, due to the precariousness of the analyzed urban settings, the proposed alternatives go beyond the management of just residual risk to positively impact the beneficiaries’ quality of life and the reduction of the built environment’s physical vulnerability in the short and medium terms. Our study proposes a prospective estimation of future risk despite the limitations of data availability. This study opens a window to new approaches and proposes a systematic process to design DRR policy aimed at the poor and vulnerable strata of society.