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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