LAYER 1: Risks that are frequent but less severe are usually managed by the producers and SMEs, or at the government level through regular annual budget allocations. However, the paramount objective should be to prioritize preventing human and economic losses through various DRM measures.

LAYERS 2 and 3: Risks of low-to-moderate frequency and moderate-to-high severity that can be managed:

• At the national level, by the government via pre-disaster financial plans and indemnity and/or index insurance solutions that enable the government to better manage extreme weather events.
• At the regional level, by aggregators (e.g. financial institutions) via own capital and/or insurance (index products and/or indemnity products).
• At the local level, by producers and SMEs through a mix of DRM strategies including suitable insurance solutions (particularly index products).

LAYER 4: Risks of low frequency but high severity causing large damages should be transferred to third parties (insurance and reinsurance, catastrophe bonds and pan-national insurance pools), which complement various coping strategies, including international assistance and social protection programmes (see examples in Box 5, below).

Box 5: Examples of Integrated Approaches

Combination of catastrophe bonds with insurance and post-disaster transfer payments, such as the Disaster Risk Management Development Policy Loan − CAT-DDO 2, Philippines

http://documents.worldbank.org/curated/en/943071467993518783/Philippines-Disaster-Risk-Management-Development-Policy-Loan-with-a-Catastrophe-Deferred-Drawdown-Option-CAT-DDO

A three-level approach combining catastrophe bonds with insurance and post-disaster transfer payments (e.g. Disaster Risk Management Development Policy Loan − CAT-DDO 2, Philippines)

http://projects.worldbank.org/P155656?lang=en and

http://documents.worldbank.org/curated/en/809321491482465145/pdf/ISR-Disclosable-P155656-04-06-2017-1491482456910.pdf