Most disaster losses in Emerging Asia remain uninsured, leaving households and communities vulnerable to financial shocks.
Micro-disaster risk financing tools, including micro-disaster risk insurance and micro-catastrophe bonds, can better respond to the specific losses that communities experience, based on more granular knowledge of local risks and needs.
Developing local- and community-level data can help strengthen financial protection.
Governments can support wider use of micro-disaster risk financing by improving financial literacy and creating enabling regulatory frameworks.
Fostering micro‑disaster risk finance in Emerging Asia
Global natural catastrophe losses reached USD 318 billion in middle- and low-income countries in 2024, with more than half of losses uninsured (SEADRIF, 2026[1]; Swiss Re Institute, 2025[2]). In Emerging Asia, disaster-related damage totalled USD 685 billion from 2010 to 2024 (OECD, 2025[3]). At the same time, protection gaps are particularly large in the region, where countries experienced roughly 100 disasters with around 80 million people affected per year over the past decade (OECD, 2025[3]).
While governments and their development co-operation partners have strengthened the use of large-scale, national disaster risk financing (DRF) instruments such as contingency funds, parametric insurance, and catastrophe bonds over the past decade (OECD, 2024[4]), households, small businesses and local governments often remain financially exposed when disasters strike. Many losses are not insured, meaning that families may lose income and assets, businesses may struggle to reopen, and local authorities may face immediate recovery costs without adequate funding.
Strengthening micro-disaster risk finance is an effective approach to utilise local specific information and reach affected people quickly. Small-scale disaster risk financing mechanisms – also called micro-disaster risk finance (Micro-DRF) – can complement national programmes by delivering support directly to local communities. Because they are designed around local conditions, they can better reflect the risks faced by households, farmers and small businesses (OECD, 2024[4]). For instance, research suggests that basis risk, i.e. the mismatch between payout and loss, can be reduced when triggers are tailored to local conditions (Jensen, Barrett and Mude, 2016[5]). An additional benefit of Micro-DRF is that many small-scale instruments can provide financing quickly after a disaster, since parametric and index-based products release funds automatically when predefined conditions are met (Kousky, 2019[6]). Such rapid support can also reduce reliance on emergency borrowing, asset sales and post-disaster assistance (World Bank, 2019[7]; Microinsurance Network, 2025[8]).
Two Micro-DRF instruments are particularly relevant and growing:
1. Micro-disaster risk insurance. According to a Microinsurance Network study, microinsurance covered 344 million people across 37 countries in 2023, with reported premiums reaching USD 6.2 billion (Microinsurance Network, 2025[8]). Asia and the Pacific accounted for nearly 80% of all microinsurance customers in the countries covered by the study.
2. Micro-catastrophe bonds remain a niche instrument but are becoming more feasible as issuance sizes decline and market infrastructure improves. Catastrophe-bond markets are showing signs of greater flexibility: between 2020 and 2025, 24 catastrophe bonds of USD 5 million or less were issued, compared with only five between 2014 and 2020, and 2026 saw the smallest recorded catastrophe bond to date at USD 2 million (Artemis, 2026[9]).
Both instruments can provide predictable liquidity after disasters, reduce pressure on public finances and encourage financial preparedness (Kousky, 2019[6]; Lakdawalla and Zanjani, 2012[10]; OECD, 2024[11]; OECD, 2025[3]).
Micro-disaster risk insurance refers to microinsurance products designed to provide disaster coverage to households, farmers, and small businesses through affordable premiums.
By providing coverage before disasters occur, it offers a reliable and predictable form of financial protection (Microinsurance Network, 2025[8]; OECD, 2025[3]). Because these products operate at the local and community levels, they can be tailored to local risk profiles and needs, allowing coverage to better reflect the losses people actually face (OECD, 2024[4]). Microinsurance can also provide timely financial support after disasters, helping vulnerable populations recover more quickly and reducing reliance on savings depletion or post-disaster aid (Kousky, 2019[6]; World Bank, 2019[7]; Microinsurance Network, 2025[8]). Microinsurance also contributes to broader disaster resilience by strengthening financial preparedness and risk-sharing mechanisms (Lakdawalla and Zanjani, 2012[10]; OECD, 2025[3]; OECD, 2024[4]).
Micro-disaster risk insurance is growing alongside the broader microinsurance market. According to the Microinsurance Network study, 112 of the 985 products surveyed cover climate or natural hazards and reach more than 42 million people across the 37 countries examined. Most disaster-related microinsurance products focus on agriculture, although significant opportunities exist to expand coverage to areas such as property protection and business interruption insurance for MSMEs (Microinsurance Network, 2025[8]). Among all microinsurance products included in the study, those that consistently provided data and information demonstrated growth in coverage, as reflected by the increase in the number of clients. As shown in Figure 1, the number of people covered by those products increased from around 42 million in 2021 to 71 million in 2023.
Note: Data in the report use voluntary, self-reported information from 294 insurance providers in 37 countries, covering 985 microinsurance products. This figure includes a sample of 196 products that consistently provided information to the study.
Source: (Microinsurance Network, 2025[8]).
New products launched in recent years demonstrate the strong growth potential in micro-disaster risk insurance. In agriculture alone, 42.5 million people were covered in 2023, 88% of them through a national scheme in India. In addition, 58% of agricultural microinsurance products received some form of subsidy, and these subsidised products accounted for 97% of those covered, highlighting the important role that public support can play in expanding coverage (Microinsurance Network, 2025[8]). These figures suggest that microinsurance can scale rapidly when supported by targeted policies and robust national programmes.
Country experiences further illustrate the value of microinsurance in disaster contexts. At the product level, the Center for Agriculture and Rural Development Mutually Reinforcing Institutions (CARD MRI) Mutual Benefit Association covered 7.5 million members in the Philippines and disbursed EUR 1.8 million to 58 000 disaster-affected claimants in 2023 alone (OECD, 2025[3]). At the sector level, the Philippine microinsurance industry’s response to Typhoon Haiyan delivered USD 12 million in payments to reach 111 000 insured individuals within six months of the disaster, demonstrating both the speed and reach that well-designed schemes can achieve (Cambridge Institute for Sustainability Leadership, 2019[12]; Insurance Commission of the Philippines, 2024[13]).
These examples suggest that microinsurance can strengthen resilience by bringing financial protection closer to the communities most exposed to disaster risks.
Catastrophe bonds have traditionally been used to transfer low-probability, high-severity risks through large issuances that commonly exceed USD 100 million, reflecting the costs and complexity associated with issuing these instruments (OECD, 2024[11]). Micro-catastrophe bonds (Micro-CAT bonds) refer to significantly smaller issuances that provide more targeted coverage and can address different layers of disaster risk. Although still uncommon, Micro-CAT bonds have the potential to expand market-based disaster risk financing to specific communities, municipalities and sectors that may not be served by larger transactions.
By operating at a smaller and more targeted scale, Micro-CAT bonds can be designed around the specific risks faced by a community or sector, helping align payouts more closely with local losses (OECD, 2024[11]). Like other parametric instruments, they can also provide rapid and predictable liquidity once a predefined trigger is met, which may be particularly valuable for smaller entities that have limited capacity to absorb delays in post-disaster financing (Kousky, 2019[6]).
Recent data suggest that catastrophe bond issuance sizes are gradually declining, making smaller transactions increasingly feasible. While the average catastrophe bond remains around USD 170 million (Bentley Reid, 2025[14]), no catastrophe bonds of USD 5 million or less were issued before 2014 (Artemis, 2026[9]). Between 2014 and 2020, 5 transactions of this size were recorded, rising to 24 between 2020 and 2025 (Artemis, 2026[9]). In the first half of 2026 alone, 4 catastrophe bonds below USD 5 million were issued, including the smallest catastrophe bond recorded to date, the USD 2 million LI Re (Series 2026-1 and 2026‑2). The smallest annual issuance size has generally declined over time (Table 1). While micro-CAT bonds remain a niche segment of the market, these trends suggest growing potential for their use in disaster risk financing.
One example is the Dunant Re IC Limited (Series 2021-1) transaction, a USD 3 million privately placed catastrophe bond issued on behalf of the Danish Red Cross. The bond provides protection for populations located within 100 kilometres of ten volcanoes across multiple countries (Artemis, 2026[9]). Its relatively small size and highly targeted coverage illustrate how catastrophe bonds can be adapted to specific risks and populations. Similar structures could potentially be applied to support disaster protection for smaller cities, communities or economics sectors.
Additional examples include the Seaside Re (Series 2026-15) transaction, a USD 2.5 million privately placed catastrophe bond providing exposure to United States property catastrophe risks through January 2027, and the Artex Axcell Re (Series FE0002), which involved approximately USD 4 million in notes covering Japanese property catastrophe risks through April 2026 (Artemis, 2026[9]). These transactions demonstrate that catastrophe bonds can increasingly support small, targeted issuances. Although only a limited number of such transactions are completed each year, they suggest scope for further development of Micro-CAT bonds within broader disaster risk financing frameworks.
Make products easy for local people and communities to understand and use. People are more likely to participate in disaster protection schemes when they clearly understand the benefits and trust that payments will be made when disasters occur. Products should therefore be designed with affordable premiums, clear terms and visible benefits that can sustain demand over time for local people and communities (OECD, 2024[4]; Microinsurance Network, 2025[8]). Schemes should be clearly defined and communicated before launch. When communities see that products pay out as expected, demand and renewal rates are more likely to increase (World Bank, 2019[7]). Regulators can support market development by establishing clear frameworks for Micro-DRF instruments. Streamlined approval processes and appropriate capital treatment can help reduce costs for private sector participants (OECD, 2024[4]).
Involve communities from the start to the end. Local communities understand their risks better than anyone else. Products developed without their input often experience lower uptake and higher lapse rates (Microinsurance Network, 2025[8]). Governments, insurers and development partners should involve communities in product design and testing to ensure that coverage reflects local needs. Local governments often have a better understanding of community risk profiles than central authorities, helping to reduce the mismatch between losses and payouts and improve product relevance for both microinsurance and Micro-CAT bonds (OECD, 2024[4]). Private sector participation can also support the scale and long-term sustainability of Micro-DRF instruments. Where communities do not have direct access to capital markets, intermediaries such as NGOs or development banks can help aggregate risks and facilitate relationships with investors.
Improve financial and insurance literacy. Many people in Emerging Asia remain unfamiliar with insurance and other disaster financing tools, particularly among low-income and rural populations. Public awareness campaigns and community-based education programmes can help households and small businesses make informed decisions about financial protection. Outreach through trusted community channels, such as local government offices, agricultural co-operatives and community organisations, is often more effective than centralised campaigns (Microinsurance Network, 2025[8]). Over time, stronger financial literacy also supports demand for Micro-DRF products and encourages greater private sector participation (OECD, 2024[4]).
Invest in local risk data and monitoring systems. Governments and regional bodies should invest in high-quality hazard and exposure data, including rainfall gauges, flood sensors and seismic monitoring networks at the subnational level. Clear institutional responsibility for trigger data, combined with appropriate data-sharing arrangements, can reduce transaction costs and improve the performance of both microinsurance and Micro-CAT bonds (OECD, 2024[4]).
References
[9] Artemis (2026), Catastrophe Bond & Insurance-Linked Securities Deal Directory, https://www.artemis.bm/deal-directory/.
[14] Bentley Reid (2025), Catastrophe Bonds: An Overview, https://www.bentleyreid.com/investment-page/theme-based-investing-cat-bonds/.
[12] Cambridge Institute for Sustainability Leadership (2019), Mutual Microinsurance and the Sustainable Development Goals: An Impact Assessment following Typhoon Haiyan, University of Cambridge Institute for Sustainability Leadership, https://www.cisl.cam.ac.uk/resources/sustainable-finance-publications/mutual-microinsurance-inclusive-development.
[13] Insurance Commission of the Philippines (2024), Microinsurance Industry Performance Report 2023, Republic of the Philippines, https://www.insurance.gov.ph/microinsurance-resources/.
[5] Jensen, N., C. Barrett and A. Mude (2016), “Index Insurance Quality and Basis Risk: Evidence from Northern Kenya”, American Journal of Agricultural Economics, https://onlinelibrary.wiley.com/doi/full/10.1093/ajae/aaw046.
[6] Kousky, C. (2019), “The Role of Natural Disaster Insurance in Recovery and Risk Reduction”, Annual Review of Resource Economics, https://doi.org/10.1146/annurev-resource-100518-094028.
[10] Lakdawalla, D. and G. Zanjani (2012), “Catastrophe Bonds, Reinsurance, and the Optimal Collateralization of Risk Transfer”, Journal of Risk and Insurance, https://doi.org/10.1111/j.1539-6975.2011.01425.x.
[8] Microinsurance Network (2025), The Landscape of Microinsurance 2024, Microinsurance Network, https://microinsurancenetwork.org/resources/the-landscape-of-microinsurance-2024.
[3] OECD (2025), Economic Outlook for Southeast Asia, China and India 2025: Enhancing Disaster Risk Financing, OECD Publishing, Paris, https://doi.org/10.1787/6fc95782-en.
[4] OECD (2024), Economic Outlook for Southeast Asia, China and India 2024: Developing amid Disaster Risks, OECD Publishing, Paris, https://doi.org/10.1787/3bbe7dfe-en.
[11] OECD (2024), Fostering Catastrophe Bond Markets in Asia and the Pacific, The Development Dimension, https://doi.org/10.1787/ab1e49ef-en.
[1] SEADRIF (2026), Southeast Asia Disaster Risk Insurance Facility — About, https://seadrif.org/who-we-are/#:~:text=SEADRIF%20is%20a%20regional%20initiative,before%20a%20disaster%20even%20occurs.
[2] Swiss Re Institute (2025), sigma 1/2025: Natural Catastrophes — Insured Losses on Trend to USD 145 Billion in 2025, Swiss Re Institute, https://www.swissre.com/institute/research/sigma-research/sigma-2025-01-natural-catastrophes-trend.html.
[7] World Bank (2019), Boosting Financial Resilience to Disaster Shocks: Good Practices and New Frontiers, https://openknowledge.worldbank.org/server/api/core/bitstreams/09d4f276-c7cb-5381-a5c3-bdba8fc2554d/content.
Contacts
Kensuke Molnar-Tanaka (kensuke.molnar-tanaka@oecd.org)
Prasiwi Ibrahim (prasiwi.ibrahim@oecd.org)