Natural Disaster Risk Management
Post on 01-Feb-2016
33 Views
Preview:
DESCRIPTION
Transcript
Natural Disaster Risk Management
Arup ChatterjeeSenior Financial Sector Specialist
Asian Development Bank
Let’s Listen to the Insurance Regulators and Experts
Seminar organized by Association of Insurers and Reinsurers of Developing Countries, Association of Insurance Supervisory Authorities of Developing Countries, and Insurance Institute for Asia and PacificManila, 7 September 2012
Outline
2
Disaster Risk Management in Developing Member Countries of Asia
Role of Multilateral Agencies in Disaster Risk Financing
An Overview of ADB's Disaster Risk Financing Activities
Key Messages
Q & A
3
4
5
6
7
Measuring disaster impacts against development investments
On the disaster sideBetween 2005–2010 the economic costs of disasters exceeded $269
billion, averaging $53.8 billion a year.
On the development sideThe most recent OECD figures indicate that total ODA assistance to
ADB’s developing member countries for 2009 was $32 billion.
ImplicationThe combined contributions of all the region’s development partners
does not keep up with the economic and social costs of disasters in Asia and the Pacific.
8
Disaster risk reduction is development
• Disaster risk management is not a separate development sector.
• DRM is a development approach and is part and parcel of development actions.
• Without a risk-sensitive approach, development cannot be sustainable.
9
A Hurricane’s Impact on Asset Trajectory
shock recovery
better-off HH
poorer HH
poverty-trap
threshold
Time
Ass
ets
Source: Carter, Little, Mogues, and Negatu 200510
Basics of DRM
3
Risk = Hazard x Exposure xSensitivity
Capacity
where represents Vulnerability
11
Losses = Risk factor
Recovery = Finance factor
Extent of damage > Available Finance
The biggest financing challenge is availability of liquidity at the onset of a disaster
Rationale for DRM and DRF
• Governments are responsible for large portfolios of public infrastructure assets subject to risk
• Guarantee sufficient capital for emergency relief and assistance to affected households, businesses and communities
• Analyze, measure and manage government's disaster contingent liability– comprehensive approach to embedded contingent risks from
disasters
• Avoid diverting funds from budgets or from already disbursed development loans to finance post-disaster expenses
12
Applying DRM
Ex-ante– Development planning,
programs and projects– Existing vulnerability of
populations and their infrastructure
Ex-post– Emergency response– Disaster recovery and
reconstruction
13
Risk Assessment
Risk Mitigation
Emergency Preparedness
Institution Building
Risk Financing
Risk Operations
Recovery Process
Reconstruction
Ex ante
Risk event
Ex post
Time
14
Country Assets (people, housing, factories, schools…)
Country Assets (people, housing, factories, schools…)
Risk AnalysisExpected Annual Loss
Loss Exceedance (PML’s)Risk Transfer Cost/Benefit
Risk AnalysisExpected Annual Loss
Loss Exceedance (PML’s)Risk Transfer Cost/Benefit
Revise StrategyReinsurance/Alternative
Risk Financing Strategies
Revise StrategyReinsurance/Alternative
Risk Financing Strategies
Manage PositionManage Position
NoNo
Yes
Lower RiskMitigation, Land use
planning
Lower RiskMitigation, Land use
planning
(Risk Transfer/Financing) (Risk Reduction)
Achieve Risk Management
Objectives?
Achieve Risk Management
Objectives?
Flood, Earthquake, Wind….Flood, Earthquake, Wind….
National Catastrophe Risk Management
Source: EQEBuilding Capacities to Address Financial Implications of External Shocks and Climate Change
Outline
15
Disaster Risk Management in Developing Member Countries of Asia
Role of Multilateral Agencies in Disaster Risk Financing
An Overview of ADB's Disaster Risk Financing Activities
Key Messages
Q & A
- Management of retained risks- Elimination of preventable risks
ADB’s Integrated Disaster Risk Management Approach
- Transfer of disaster risks (amortization)
Country level IDRM model
National & local development systems
Input streams
16
WB Disaster Risk Management
Framework
Understand contingent liability
Manage the volatility of the costs
17
Key Components of a Results-Based Strategic Approach to DRM
Analysis-driven– Natural hazard (including
climate change hazard), vulnerability and risk assessments
Focused design– Selection of intervention
type(s) – policy, investment, capacity
– Selection of risk management option(s) - financial, economic, physical
18
Optimized for necessary scope and scale
• Core results attributes – planning, budgeting, implementation, monitoring and evaluation
• Focus on common results• Interdependency – top down,
bottom up and linked• Horizontal and vertical linkage
– across agencies in all sectors at all administrative levels
19
What could the DRF solutions look like?
Disaster liquidity / reserves
– Contingent credit or insurance based solutions
– Using parametric, index or modeled loss triggers
Public infrastructure asset coverage
– Transport, power, water
Stengthening of safety nets
– Microinsurance
Facilitate mitigation and adaptation
– Climate Funds, Carbon Finance Microfinance
Carbon Finance
Disaster Risk Finance Solutions
Source: Adapted from the World Bank
High severity
Low severity
High frequency Low frequency
Reserves / Calamity Funds (potentially insurance backed)
Contingent credit
Insurance / Reinsurance
Catastrophe bonds & other Insurance Linked Securities
International Donor Assistance
Once in 3-5 years
Once in 10-15 years
Once in 15-20 years
Once in 75-100 years
Once in 25-50 years
Expected return period
Risk retention
Risk transfer
20
Three-tiered risk layering approach
Source: Adapted from the World BankBuilding Capacities to Address Financial Implications of External Shocks and Climate Change 21
Risk Modeling
Risk(i.e. probable loss)
Hazard(i.e. hurricane wind)
Exposure(i.e. houses)
Vulnerability functions(of house to wind)
Vulnerability
Disaster Impact Analysis - Scenario or Stochastic -
22
23
Designing Effective Risk Management Programs for Sovereign Clients
• Risk Identification and Measurement– Extensive use of stochastic catastrophe risk models employing the
latest scientific research on natural hazards and utilizing stock inventory and vulnerability data (EQECAT, RMS, AIR)
• Loss control programs– Loss prevention programs/national mitigation efforts/enforcement of
building codes, construction supervision
• Risk transfer/risk financing– Reinsurance– Government– Insurance Industry
Costs and benefits of financial instrumentsInstruments Indicative
Cost (multiplier)
Disbursement (months)
Amount of funds available
Donor support (relief) 0-1 1-6 Uncertain
Donor support (recovery & reconstruction) 0-2 4-9 Uncertain
Budget contingencies 1-2 0-9 Small
Reserves 1-2 0-1 Small
Budget reallocations 1-2 0-1 Small
Contingent debt facility (e.g., CAT DDO) 1-2 0-1 Medium
Domestic credit (bond issue) 1-2 3-9 Medium
External credit (e.g. emergency loans, bond issue)
1-2 3-6 Large
Parametric insurance 2 & up 1-2 Large
ART (e.g., CAT bonds, weather derivatives) 2 & up 1-2 Large
Source: Ghesquiere and Mahul (2010)
24
Matching the Funding Needs
The challenge is how to utilize a wide range of instruments to address the costs of disasters and be sure that they are available if and when needed.
The challenge is how to utilize a wide range of instruments to address the costs of disasters and be sure that they are available if and when needed.
Source: Adapted from the World Bank25
Key Challenges• Low country incomes
– Limited finance and related market tools for mitigation and adaptation
• Degradation of environment due to growing demands of rapidly growing population
• High degree of uncertainty with regard to expected economic losses– Poor statistics
• Catastrophe Risk Financing Instruments: scepticism on reliability of weather data
– Extent of devastation and loss normally underestimated
– Losses arising from business interruption and bankruptcies often unclear and undisclosed
• Corruption and poor governance
26
Key Challenges• Inability to put in place pre-requisites for an efficient catastrophe risk
financing instrument – e.g. enforced building codes
• Undeveloped insurance sector– General inadequacy in local insurance laws with respect to post-disaster
damages
– Excessive reliance on the government as the reinsurer of last resort
• Lack of risk awareness at the government level and among public– Perceived low probability of disasters: hence insurance is of low priority
among would be consumers of insurance products
– Lack of understanding of insurance by locals; low awareness of insurance benefits vis-a-vis costs (premiums)
• Lack of local technical knowledge and experience Build complex insurance models and carry out loss assessments
Adapt to climate change effects27
Role of Multilateral Agencies• Reducing vulnerability of the poor to natural disasters
• Quantifying the uncertainty– Independent estimates of countries’ economic exposures and vulnerability to
natural disasters– Enabling risk reduction by providing governments with access to hazard maps
and information on hazard impacts on populations, land area, ports and airports
• Estimating the economic benefits from different risk transfer/ risk hedging arrangements
– Selecting best risk transfer and financing programs• Reduce government exposure to natural disasters• Optimal allocation of risk in the economy
– Ensuring sufficient liquidity exists after a disaster– Speeding economic recovery
• Build capacity, fill knowledge and funding gaps, and integrate private sector expertise and resources
– Better mitigation and more effective poverty alleviation28
Outline
29
Disaster Risk Management in Developing Member Countries of Asia
Role of Multilateral Agencies in Disaster Risk Financing
An Overview of ADB's Disaster Risk Financing Activities
Key Messages
Q & A
Strategy 2020 of ADB
• Vision: “An Asia and Pacific Free of Poverty”
• Three complementary strategic agendas– Inclusive growth
• putting in place sound policies and institutions to improve the poor’s access to credit/ insurance and basic productive assets
• Strengthening social safety nets to prevent extreme deprivation– Environmentally sustainable growth– Regional integration
To better mobilize resources - including region’s savings and inbound capital flows – and maximize returns
30
Southeast Asia Disaster Profile
31
ADB Application of Disaster Funds
APDRF Fund Utilization by Region
1987–2011
DRM Funds by Country
1987–2011
DRM Funds by Type1987–2011
32
ADB’s DRF Activities in South East Asia
• Southeast Asian countries extraordinarily exposed to human and economic shocks from natural disasters
• Since 1987, ADB has provided over $2.3b for 145 hazard and DRM activities – 62% for DRR actions
• Region is largest recipient of APDRF funds
• Disaster Response Facility under the Asian Development Fund to be established
• support the poorest countries respond to natural calamities on a pilot basis
33
Addressing the Region’s DRR Priorities
Institutionalizing DRM
Community-
Based DRM
Achieving
Gender
Equality
Private Sector
Participatio
n
Disaster Risk Finance
Water-Related
Disasters
DRR-CCA Linkages
Regional DRR Cooperation
Urban Disaster
Risk
Disaster Recovery
Capacity
FinancePolicy
34
ADB DRF Initiatives in Southeast Asia
• Regional Level Initiatives* IDRM Trust Fund* ASEAN-UNISDR Technical Cooperation* Regional Economic Integration* ASEAN-ADB Memorandum of Understanding
• Country Initiatives* Philippines* Indonesia* Viet Nam
• Other Initiatives* ADB Disaster Stand-by Credit* Microinsurance
35
Regional Initiatives
• IDRM Trust Fund* Pending support from CIDA* IDRM solutions for ASEAN region
• ASEAN-UNISDR Technical Cooperation* Regional mapping and stocktaking via web-based portal project
• Regional Economic Integration* Office of Regional Economic Integration considering:
– DRM data enhancement, strengthening insurance regulatory regimes, microinsurance, development of cat bonds and contingent credit products
• ASEAN-ADB MOU* A channel for DRF cooperation
36
Country Initiatives• Philippines and Indonesia
* JFPR TAs for Urban-based DRF programs ($2m) (2011-14)
– DRF pilots in two cities in each country
– Risk profiling > city selection > DRF options > implementation
* DRF Framework for the Philippines (2011-12)
– Collaborate with World Bank to spearhead DRF Technical Working Group
• Viet Nam (2011-14)* JFPR TA for DRF-CCA program
development ($1m)– DRF pilots in two cities– Risk profiling > city selection > DRF
options > implementation– Special focus on DRF/CCA
application
37
Phases Key activities
Phase 1 Risk profiling and city selection
Phase 2 Study of potential DRF options
Phase 3 Evaluation/selection of DRF options
Phase 4 Implementation of DRF scheme
* Philippine Earthquake Pool (2011-12)
– ADB acts as catalyst to support private sector pool development
Other Initiatives
• ADB Contingent Credit Program* Emergency stand-by credit is a basic DRF tool* Opportunity costs need to be avoided* Two-tier facility allows new borrowing or reallocation of
undisbursed loan balances
• Microinsurance* ADB active in the Philippines supporting (GIZ, MIPSS)
Microinsurance Innovation Project for Social Security– Developing policy framework at national level– Developing new regulatory framework– Developing financial literacy for microinsurance
38
Outline
39
Disaster Risk Management in Developing Member Countries of Asia
Role of Multilateral Agencies in Disaster Risk Financing
An Overview of ADB's Disaster Risk Financing Activities
Key Messages
Q & A
Key Messages
• Strong and continuous political commitment is essential
• Foundation for a unified country plan integrating DRR, DRF, and CCA is central– Local ownership – Value proposition for all the parties (client/donor/industry/ NGOs)
• A “bottoms- up” high quality risk analysis is essential for decision making and risk capital financing
• Risk assessment technology and financial market development create new options for government risk management
• Disaster management (ex-ante+ex-post) as crucial element of sustainable development– Risk reduction initiatives should be integrated into disaster
response and recovery measures 40
41
Arup ChatterjeeSenior Financial Sector SpecialistOffice of Regional Economic IntegrationAsian Development BankManila, PhilippinesEmail: achatterjee@adb.org
top related