Disaster Risk Financing - ADB Experience
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Disaster Risk Financing
Global initiatives and their application to ASEAN disaster management
Presentation by the Asian Development Bank
March 31, 2011
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Overview of presentation:
• Scope of natural disasters in ASEAN countries
•Disaster Risk Financing (DRF) as part of Integrated Disaster Risk Management
• IDRM initiatives in ASEAN Countries
• The role of the private sector
• Requirements For DRF Success in ASEAN Countries
Mt. Merapi volcano eruption - Indonesia
Source: F
lickr, arbal
In the last several months disaster events have had a devastating effect in developing countries in Asia and the Pacific …
Sri Lanka floods
Source: F
lickr, IRT
AG
Pakistan floods
Source: B
ritish Red C
ross
Christchurch earthquake
Source: F
lickr, Kiw
i Jono
Queensland floods - Australia
Source: F
lickr, Salvation A
rmy IH
Q
… and in developed countries as well.
Japan earthquake and tsunami
Source: A
FP
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The Numbers: Asia-Pacific is a Region Disproportionately at Risk
Greater impact of disasters in Asia (1991-2008) 40% of worldwide disasters, 76% of deaths, 91% of
affected populations, 47% of lost property Average yearly impact in Asia:
158 Disaster events, 208 million affected, $40.5b damages
Higher losses in DMCs
Economic costs 20x disaster losses in developed world
Substantial hazard variability and vulnerability
70% +/- of disasters are weather related
Geophysical hazards account for greater share of damage/loss
Background on disaster risks in ASEAN countries
Southeast Asian Region Disaster Profile
ASEAN in Asia-Pacific
Population Drought Epidemic Earthquake Flood Storm Volcano Wildfire
14.9% 27.5% 29.8% 27.6% 32.3% 30.8% 67.9% 28.4%
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Disaster events 1970-2008
The Issues: A Region Perpetuating Risk?
Poor disaster management ethos – but getting better! Lack of comprehensive tools to manage disaster risks Lack of ownership – “disaster is someone else’s
problem” Unsafe development practices compounded by
urbanization, poverty, and loss of ecosystem buffers
Urgent need to better manage the consequences of both natural and built environments
Less protected
<5% of losses insured, (40% in developed world)
Widespread rural poverty
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Background on disaster risks in ASEAN countries
Unintended consequences of post-disaster finance redirection of project funding away from other
development priorities long delays in the receipt of funds misdirected spending geared to donor priorities not
the recipient country’s needs
Negative effects of existing financing strategies
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Disaster risk finance (DRF)
Disaster risk reduction (DRR)
Climate change
adaptation (CCA)
Using financial instruments
(lending, insurance, bonds) to manage and transfer risk
Investment in prevention and
reduce drivers or risk and strengthen
resilience
Investment in adaptation intersects
substantially with DRM and supports
common goals
Emergency stand-by credit facilities
Insurance-based sovereign liquidity
Cat bonds
Disaster awareness / preparedness
Construction standards and compliance
Land use & zoning
Planning for changes in flood / drought patterns
Habitat protection Strengthening
resilience of agriculture and livelihoods
Integrated Disaster Risk ManagementIntegrated Disaster Risk Management
IDRM
DRF is part of IDRM Reduce disaster vulnerabilities and impacts through:
Risk assessment, prevention, reduction, and finance
Develop country capacity to manage risks proactively: Risks can be prevented, reduced, retained or transferred Reach out to ADB regional departments to integrate IDRM into
Country Partnership Strategies and investment projects
Integrate finance and DRR as mutually reinforcing components of IDRM
Harmonize DRR with elements of CCA to achieve common objectives
Demonstrate feasibility and effectiveness of IDRM through capacity development
Create expanded donor support for IDRM
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ADB Priorities
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IDRM and Disaster Risk Financing Develop finance options to manage and
transfer risks DRF amortizes risk and externalizes peak losses
Reduce dependency on post-disaster finance Post-event finance inhibits development of ex ante
capacity
Link DRR and DRF initiatives to encourage national and sub-national DRM capacity
Develop regional applications of DRF Act as catalyst to spur private sector
DRF in IDRM
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A variety of DRF models
Scale CoveragePrivate sector role
Disaster risk financing
Model
Caribbean pool (CCRIF)
Mexico state insuranc program (FONDEN)
Turkey property cat. insurance (TCIP)
Philippines cooperative insurance (Munich Re)
Viet Nam agricultural insurance (Swiss Re)
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Initiatives in ASEAN countries 3 yr project planned to start in Indonesia, the
Philippines, and Viet Nam in first quarter 2011 with support from JFPR
Objective: to develop DRF solutions within an IDRM framework - that support the creation of regional DRR solutions
Focus on urban risk To address rising risks from the compounding of
urbanization, continuing poverty, and increasing climate vulnerability
Potential solutions Disaster liquidity / reserves
- Contingent credit or insurance based solutions- Use parametric, index or modeled loss triggers
Public infrastructure coverage- Transport, power, water
Other options (e.g. microinsurance)
DRF in IDRM
IDRM Pipeline
Disaster risk financing
research & development for risk pooling and risk transfer mechanisms
increasing access to credit to accelerate DRM investments
Source: F
lickr, easypaisac
IDRM Pipeline
Risk identification and analysis
risk analysis and modeling
risk data clearinghouses
expanding public access to risk information
Public records damaged by the 2010 flood in Pakistan. Much critical risk information is also maintained in hard copy, where it is vulnerable to damage and not easily accessible.
IDRM Pipeline Strengthening of
enabling environment
improving IRDM policies (especially linking DRM and Climate Change policies)
strengthening DRM resource streams to local governments (decentralizing DRM)
promoting city cluster approach to IDRM
Development of Metro Manila showing the years that each area became a city.
Source: W
ikipedia
IDRM Pipeline
Engaging civil society and private sector
grant funding mechanisms for disaster risk reduction activities
Source: IO
M
IDRM Pipeline
Regional learning and mutual support
strengthening IDRM role of regional institutions like ASEAN, SAARC, and SOPAC
promotion of peer learning
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•Early collaboration is critical
• Private sector has technical/financial resources and expertise that can be readily deployed
• Sustainable DRF requires the public sector to act as a catalyst - not as a long-term subsidy
• Capacity development of domestic DRF markets is crucial to implementing an IDRM framework
Broad geographical diversification to absorb risks
Importance of private sector
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Key requirements for DRF success in ASEAN countries
Necessity to build political will and technical understanding of proactive DRM
Importance of integrating DRF into broad DRM framework including Disaster Risk Reduction
Need for development organizations to build DRM capacity, provide incentives and catalyze ex ante DRM
Collaborate with private sector interests at inception to assure continuity and sustainability
Key Lessons
Strategy 2020 and Reducing Disaster Risk
“Disaster risk management will be a vital part of the development process”
“ADB will continue to mainstream disaster risk management and to provide early and medium-term disaster response and assistance in partnership with specialized aid agencies.”
“ADB will be open to a new range of future partnership activities that can deliver aid effectively, improve development results, and improve disaster and emergency assistance”
“ADB will help its DMCs adapt to the unavoidable impacts of climate change”
[ADB will provide …] “Support for insurance and other risk-sharing instruments”
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Thank you!
For follow-up inquiries:
Neil Britton
Principal Disaster Risk Management Specialist
Regional and Sustainable Development Department
Asian Development Bank
E-mail nbritton@adb.org
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