Resilience Bonds Provide New Model for Infrastructure Financing

"One way for cash-strapped local governments to increase both protection and insurance against disasters is through a new financial tool called resilience bonds," according to a post by Shalini Vajhala.

Vajhala and colleague James Rhodes recently produced a report titled "Leveraging Catastrophe Bonds as a Mechanism for Resilient Infrastructure Project Finance" [pdf]. The idea behind the report "is to link insurance coverage that public sector entities can already purchase (such as catastrophe bonds) with capital investments in resilient infrastructure systems (such as flood barriers and green infrastructure) that reduce expected losses from disasters." Both the report and the article compare the connection between infrastructure and insurance with healthcare. Having life insurance or health insurance doesn't make people healthier, just like catastrophe bonds don't reduce physical risks.

"Resilience bonds," according to Vajhala, "combine these two different types of investments by modifying traditional catastrophe bonds to provide insurance savings that can be captured as rebates to invest in resilient infrastructure projects." The article includes more detail on why cities should be paying attention to resilience bonds.