What does the term spreading the risk mean, with regard to natural disasters?
Insurance may be the best example.

As the document you linked to describes in some detail, there are lots of ways of spreading risk. Traditional insurance is one common mechanism. I think their point is that with a functional insurance model, the effects of a natural disaster may be less profound and/or less protracted (see page 27 of the report).

Think of risk as the possibility of something unpleasant happening &mdash; say, something resulting in a financial cost. For example, there's a small risk of a hurricane destroying my house. I couldn't afford to rebuild it if that happened. So I buy indemnity cover for some small fixed monthly fee. Now there is essentially no risk to me, just a small definite cost. In effect, I have transferred my risk to the insurer.

The risk hasn't gone away. In exchange for my monthly fee, or premium, the insurer has assumed the risk of having to pay me a lot of money at some point in the future. It has been pooled with lots of other people &mdash; the insurer's other clients &mdash; so there's also the grave risk of everyone claiming at the same time. Weighing these risks and setting the premiums accordingly is what insurance companies have to be really good at. Read up on the insurance consequences of the San Francisco earthquake, the September 11 attacks, or Hurricane Andrew.