Insurers are key players in the global push to improve catastrophe resilience, a World Bank and Global Facility for Disaster Reduction and Recovery report says.

Previous natural disasters have exposed the limitations of relying on savings and loans to help communities rebuild, especially in developing economies, according to the paper, called Unbreakable: Building the Resilience of the Poor in the Face of Natural Disasters.

The experience of the 2011 earthquake in Christchurch underlines insurance’s critical role in post-disaster recovery.

“There are limits to what savings and access to borrowing can achieve,” the report says. “Private insurance is part of the solution package.

“In the developed world
and increasingly in developing countries, the private sector has demonstrated its effectiveness as a mechanism for the financial protection of individuals, businesses and government assets.

“For large shocks, insurance products can provide protection at a lower cost than savings or borrowing.”

Insurance providers bring expertise in pricing risk, which helps the public and business make better-informed decisions about risk-taking and mitigation investments.

“In such a context, insurance can create powerful incentives for people to manage their risk better and reduce losses,” the report says.

The paper’s assessment of 117 countries shows natural disasters have a bigger effect on wellbeing, measured in terms of lost consumption, than assets.

In poorer countries the impact on wellbeing is equivalent to consumption losses of $US520 billion ($695.35 billion) a year.

“Countries are enduring a growing number of unexpected shocks as a result of climate change,” the global facility’s Lead Economist Stephane Hallegatte says.

“Poor people need social and financial protection from disasters that cannot be avoided. With risk policies in place that we know to be effective, we have the opportunity to prevent millions of people from falling into poverty.”

The report says a resilience package – a collection of policies that increase a country’s ability to cope with asset losses – could improve Australia’s annual wellbeing by about $US272 million ($363.68 million) annually.