The use of financial products in mitigating natural disaster risk

This study by Mercy Corps Indonesia was conducted to investigate the role of financial products in building household resilience to natural disasters. Using a quantitative household survey in Yogyakarta and West Sumatra, two disaster-prone regions in Indonesia, the study examined levels of actual and perceived vulnerability to natural disasters, and how this links to the demand for and use of financial products for coping and recovery. The study fills a gap in research to understand what influences the uptake and use of products for disaster risk mitigation that could help inform the design and reach of these products.

Major Findings

• Financial services are more readily used by households to support recovery, but currently do not compensate for relief immediately after disasters.
• Existing access to financial services may not translate to use of savings and financial services for disaster risk mitigation.
• Expected losses from disaster are more pronounced for business income than wages, and for households with lower job and asset security.
• There is little demand for commitment savings and insurance products for risk reduction, in contrast to high-demand for flexible savings accounts. The lack of demand for insurance is consistent with global evidence, and may be linked to lack of trust, lack of financial capability and heterogeneity in need for such risk protection.
• Access to disaster-related financial services can have net psychological and behavioural benefits for investment.