Driving Innovation and Resilience: Olivier Mahul Reflects on a Decade of Transforming Disaster Risk Finance at the Insurance Development Forum

October 25, 2024

In this interview, Dr Olivier Mahul, Global Manager for Climate Finance Mobilisation at the World Bank, and former Ex-Officio Member of IDF Steering Committee and Co-Chair of IDF Operating Committee, reflects on his tenure at the IDF.

From the beginning, Olivier was instrumental in advocating for the voices of the private insurance sector to be brought further into the global conversation on disaster risk finance, adding to the dialogue with governments and development agencies.

His engagement and advocacy with the IDF have led to groundbreaking collaborations between public and private sectors, advancing innovative solutions on public private insurance partnerships such as parametric insurance and sovereign risk pools to close the protection gap and build resilience in vulnerable countries. As he now transitions into a new role at the World Bank, Olivier shares insights on how these partnerships have evolved and the crucial role they play in the future of climate finance.

1. Reflecting on your time at the IDF, what do you consider your most significant achievement in advancing the Forum’s mission of improving disaster risk management through insurance?

Dr. Olivier Mahul:
When I first started working in disaster risk finance (DRF) over a decade ago, the topic was still nascent, with limited engagement from the insurance sector. The IDF has played a transformative role in convening diverse stakeholders – from insurers to development finance institutions – creating an unprecedented space for collaboration. One of the most significant achievements to my mind has been helping to position the insurance industry as a core part of the dialogue in addressing the global protection gap, which remains a key obstacle for vulnerable countries. Fifteen years ago, there was some scepticism about the value the insurance industry could offer beyond just risk capital. Through the IDF’s efforts, we have articulated the sector’s broader value proposition, particularly in risk modelling, data analytics, and risk mitigation tools. These resources are now increasingly recognised as essential to building long-term resilience.

In terms of implementation, we’ve successfully demonstrated how insurance can be integrated into the broader fiscal risk management strategies. Governments, especially finance ministers, are now viewing insurance, not just as a vehicle for transferring risk, but as an instrument for reducing the overall cost of risk through better risk management. The IDF has been instrumental in this shift, helping to bridge the gap between insurance and government policy, making insurance a tool within broader fiscal strategies for resilience-building. We’ve also emphasised the long-term engagement and trust-building required to make these initiatives sustainable, moving beyond short-term projects to sustained dialogues between governments, development agencies, and private insurers.

2. You’ve been a key figure in establishing several regional catastrophe risk insurance facilities. What were the biggest challenges in bringing these initiatives to life, and how did you overcome them?

Dr. Olivier Mahul:
Setting up regional catastrophe risk pools – such as the Caribbean Catastrophe Risk Insurance Facility (CCRIF) and the Pacific Catastrophe Risk Insurance Company (PCRIC) – presented unique challenges. These risk pools are complex, multi-stakeholder initiatives that require both political buy-in and technical expertise. One of the biggest challenges was the diversity of needs among member countries. While each country faces different types of disaster risks, the risk pool must create a standardised solution that benefits all. Ensuring equity, while maintaining operational efficiency, was a delicate balance.

The key to overcoming these challenges has been positioning risk pools not merely as financial vehicles but as broader policy tools. These pools were instrumental in engaging with ministries of finance in the resilience agenda and serve as platforms for countries to develop and refine their national disaster risk finance strategies, providing political endorsement alongside operational solutions. Another challenge was ensuring that the pools remained dynamic and relevant. As client needs evolve – particularly with the growing risks associated with climate change – and new financial solutions (like contingent credit) become available, risk pools must adapt, incorporating new financial instruments and innovative technologies, and developing solutions for new customers such as sub-national governments and state-owned enterprises. This allows them to address a broader range of risks, including those faced by households and small businesses, not just governments. The continued success of these pools will depend on their ability to stay responsive to these evolving needs.

3. Parametric insurance has been groundbreaking during your tenure. What has been the most transformative impact of this innovation on disaster risk management, particularly for vulnerable countries?

Dr. Olivier Mahul:
Parametric insurance has been transformative, especially in the context of disaster risk financing for vulnerable countries. Parametric insurance aims to insure the risk and not the loss: unlike traditional indemnity insurance, parametric insurance triggers payouts based on predefined parameters, such as wind speed or rainfall levels, which makes it faster and more efficient. This is particularly valuable for countries where post-disaster recovery funds are often delayed by bureaucratic processes. Speed of response can be critical in preventing secondary disasters, such as disease outbreaks or economic collapse following a major event.

However, parametric insurance is not a one-size-fits-all solution. It must be part of a broader, more comprehensive package of financial and risk management tools. For example, while it excels at providing quick liquidity for emergency relief, it doesn’t necessarily cover the full extent of losses. Therefore, blending parametric products with indemnity-based solutions, and with contingent finance, can provide a more balanced and tailored risk financing strategy. One of the most transformative impacts of parametric insurance has been its ability to extend risk coverage to more remote and vulnerable populations, particularly smallholder farmers and SMEs. By simplifying the claims process and ensuring timely payouts, parametric products help close the protection gap for those who are often hardest hit by climate risks.

4. Your work on the sovereign contingent credit line against disasters has provided countries with pre-approved financial mechanisms in times of crisis. How do you foresee this model evolving in the coming years?

Dr. Olivier Mahul:
Sovereign contingent credit lines, such as the World Bank’s Catastrophe Deferred Drawdown Option (Cat-DDO), offer governments rapid access to financing in the wake of disasters, making them a crucial component of any fiscal risk management strategy. Over the years, we’ve seen these instruments evolve from being just emergency stopgaps to becoming integral parts of broader disaster risk financing frameworks. These credit lines ensure that funds are available when most needed, offering governments liquidity to address immediate recovery needs without resorting to high-cost borrowing or budget reallocations that could undermine long-term development goals. Such instrument is currently protecting more than 25 countries with almost $2 billion coverage,

Moving forward, I foresee contingent credit lines evolving in tandem with other financial instruments, such as insurance and catastrophe bonds, to create more integrated, layered approaches to disaster risk financing. There is also potential for these instruments to be backed by parametric insurance, which would combine the benefits of immediate liquidity with the cost-efficiency of risk transfer solutions. Additionally, the World Bank’s new crisis preparedness and response toolkit, which incorporates various financial instruments for different risk layers, will play an increasingly important role. The goal is to develop a more holistic, resilient approach to fiscal risk management that combines risk retention (through contingent credit and reserves) with risk transfer (through insurance) and efficient capital mobilisation.

5. As you transition into your new role at the World Bank, what lessons from your time at the IDF do you plan to bring with you? How do you envision continuing to shape global disaster risk financing?

Dr. Olivier Mahul:
My time at the IDF has reinforced three key lessons: the importance of early and sustained engagement with the private sector, the need for a holistic approach to disaster risk management combining risk finance and risk reduction investments, and the need to embed disaster risk finance within the broader fiscal and debt risk management agenda. In my new role at the World Bank, I plan to continue emphasising three elements, particularly in the context of climate finance. One of the major challenges we face today is scaling up climate finance to meet the increasing risks posed by climate change. Risk management, in all its forms—whether through insurance, contingent credit, or innovative financial instruments like catastrophe bonds—must be central to this effort.

Another lesson I’m bringing with me is the importance of developing local insurance markets. Engaging with domestic insurers and building local capacity is essential to ensuring that disaster risk financing solutions are not only sustainable but also contextually relevant. We’ve seen that when risk management tools are designed and deployed with input from local stakeholders, they are more effective and have a greater impact on resilience at the grassroots level. I urge the IDF team to continue this important work at local and regional level.

Finally, I believe the key to continued success in disaster risk financing lies in integrating financial instruments with broader development strategies. We need to ensure that countries have the capacity to manage their fiscal risks internally, reserving external risk transfer mechanisms for extreme events. This balance is critical to long-term resilience and sustainable development.

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The blog was originally published in the Insurance Development Forum website.

Insurance Development Forum

The Insurance Development Forum (IDF) is a public/private partnership led by the insurance industry and supported by international organisations. The IDF was first announced at the United Nations Conference of the Parties (COP21) Paris Climate summit in 2015, and was officially launched by leaders of the United Nations, the World Bank and the insurance industry in 2016. The IDF aims to optimise and extend the use of insurance and its related risk management capabilities to build greater resilience and protection for people, communities, businesses, and public institutions that are vulnerable to disasters and their associated economic shocks. The IDF brings together industry experts (insurers, reinsurers, brokers) multilateral organisations, non-governmental organisations and public sector institutions that share its objectives and goals. The IDF’s priorities are driven by the following: The Global Resilience Challenge – as highlighted in the UN Agenda 2030, middle/low-income countries are disproportionately vulnerable to catastrophic weather and climate-related hazards. The Protection Gap – the global insurance protection gap is an estimated USD163bn of uninsured/underinsured assets that threaten livelihoods and global prosperity. Emerging economies account for the vast majority of this (USD160bn, or 96%). The role of insurance - growing evidence indicates that countries with greater penetration of insurance coverage have faster economic recoveries from disasters and rebuild with greater resilience to future disasters. The need for greater coordination/collaboration - given the scale, scope and complexity of the resilience and protection gap challenge, a coordinated and collaborative approach bringing together the insurance industry and relevant stakeholders is critical to meeting the goals of the UN Agenda 2030. For details of IDF members from both the public and private sectors, please visit the IDF website.

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CO-AUTHORS

Olivier Mahul

Practice Manager, Climate Finance Mobilization, SCCFM, Planet Practice Group

World Bank Group

Olivier is the Practice Manager, Climate Finance Mobilization, SCCFM, Planet Practice Group in the World Bank Group. He is an economist and global expert in decision theory under uncertainty, with applications in development economics, climate finance and disaster risk finance and insurance. Olivier leads the development of innovative (parametric) sovereign risk finance and insurance solutions. He is one of the main architects of sovereign catastrophe risk pools such as the Caribbean Catastrophe Risk Insurance Facility (CCRIF), the Pacific Catastrophe Risk Insurance Company (PCRIC) and the Southeast Asia Disaster Risk Insurance Facility (SEADRIF). He also co-designed the first sovereign contingent credit line against disasters. Olivier previously led the Crisis & Disaster Risk Finance Unit and its Disaster Risk Financing and Insurance Program (DRFIP) at the World Bank, which offers analytical and advisory services for policy reforms and financial instruments against climate shocks, disasters and a wider range of crises in more than 60 emerging and developing countries all over the globe. Olivier co-chairs the Operations Committee of the Insurance Development Forum (IDF), and the working group on Climate Physical Risks of the Network of Central Banks and Supervisors for Greening the Financial System (NGFS). Olivier holds a Ph.D. in Economics from Toulouse School of Economics and post-doctorates from Wharton Business School and University of California at Berkeley. Olivier has authored more than 40 publications in international journals and two books: “Catastrophe Risk Financing in Developing Countries: Principles for Public Intervention” (with J. David Cummins) and “Government Support to Agricultural Insurance: Challenges and Options for Developing Countries” (with Charles Stutley).

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