On March 22, 2021, The Danish Red Cross, Denmark’s branch of the Red Cross has sponsored and launched the world’s first Catastrophe Bond (cat bond) for Volcano-related disasters with the support of several financial firms.
- The cat bond covers 10 volcanoes, which aims to raise up to $3 million and will transfer money from investors to the Danish Red Cross for aid in the aftermath of an eruption.
Catastrophe bond: It is a high-yield debt instrument that is designed to raise money in the insurance industry in the event of natural disasters such as an earthquake, tornado, hurricanes and typhoons, now Volcano also comes under the list.
Features of ‘cat bond for volcanoes’:
Criteria: The 10 volcanoes covered by the cat bond were selected for the significant humanitarian threat they represent, with at least 700,000 individuals living within 60 miles (100km) radius of a potential eruption.
10 Volcanoes Covered by the cat bond:
|Mexico||Popocatepetl(North America’s second-highest volcano)|
|Colombia||Nevado del Ruiz|
|Ecuador(3)||Cotopaxi, Tungurahua and Pichincha|
|Indonesia(2)||Merapi and Raung|
Existing kind of bond:
- On June 28, 2017, The World Bank has launched specialized Pandemic bonds for providing financial support to the Pandemic Emergency Financing Facility (PEF)
- But the pandemic bonds came under criticism when they failed to pay out during an Ebola outbreak in 2019 and in the early months of COVID-19 in 2020.
Recent Related News:
Pimpri Chinchwad Municipal Corporation(PCMC) has signed a Memorandum of Understanding(MoU) with the United Nations Development Programme(UNDP) India to co-create India’s 1st Social Impact Bond(SIB).
About the Danish Red Cross:
President – Sven BAK-JENSEN
Headquarters – Copenhagen, Denmark