The Use of Financial Products in Mitigating Natural Disaster Risk

This report presents key findings and recommendations based on a survey of 600 households in Indonesia on 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. This quantitative household survey was conducted in parts of Yogyakarta and West Sumatra that had experienced either earthquakes and/or volcanic eruptions over the last ten years. All households in the survey were clients of financial institutions in these regions, and half of them used financial institutions that offered disaster related financial products.

The key findings and recommendations are as follows:

• 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.