financial strategies for managing the economic impacts of natural disasters
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Financial Strategies for Managing the Economic Impacts of Natural Disasters. Session 2 World Bank Institute J. Bayer and R. Mechler. 1. 1. 1. 1. Global losses are increasing. Source: Munich Re 2004. 2. Impacts of disasters in developed and developing countries. Source: Munich Re 2000. - PowerPoint PPT PresentationTRANSCRIPT
1Comprehensive Disaster Risk Management FrameworkNational Disaster Management Systems
1111
Financial Strategies for Managing the Economic
Impacts of Natural Disasters
Session 2World Bank Institute
J. Bayer and R. Mechler
2Comprehensive Disaster Risk Management FrameworkNational Disaster Management Systems
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Global losses are increasing
Source: Munich Re 2004
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Impacts of disasters in developed and developing countries
Source: Munich Re 2000
High income Middle income Low income
5
45
187
-
2040
6080
100
120140
160180
200
Fatalities per eventMajor natural disasters 1985-1999
Per capita income country groups
2.5%
5.0%
13.3%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
High income Middle income Low income
Direct economic losses as % GDP Major natural disasters 1985-1999
Per capita income country groups
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Pre-event disaster risk management cycle
Risk Control
Catastrophe Risk
Mitigation
Risk Financing
Residual Risk
Cycle
Risk Identification and Assessment
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Risk control mitigation and risk financing
Incentives
naturalhazard
exposure
damage
naturalhazard
exposure
damage
Mitigation Financial Instruments
naturalhazard
exposure
damage
NaturalHazard
Exposure
PhysicalVulnerability Damage
FinancialVulnerability Loss
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Loss sharing and risk transfer
HouseholdsBusinessesAgriculture
Private Market
Risk Transfer
Donors and Lenders Domestic and International
Assistance International Financial Institutions
GovernmentCollective Loss
Sharing
Public Sector
Informal SectorFamily, Neighbors
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Should governments insure?
1 in 10 years
1 in 50 years
1 in 100 years
1 in 200 years
1 in 500 years
0
200
400
600
800
1000
1200
1400
Loss
es [U
SD
]
Events
Government losses and financing for storm and flood risk
Obligations government
Sum financing
fin
an
cin
g g
aps
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Risk transfer for households and businesses in developing countries?
Commercial insurance is costly and plagued by moral hazard, therefore it is advisable only if
It is affordable or there is assistance to very poor households, farms and other businesses
There are no less costly alternatives It is tied to loss reduction
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Losses reimbursed from insurance and government
Assistance as a percentage of direct losses
51% 57% 57%44%
61%
84%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Northrid
ge earthquake '9
4
Kobe earthquake '9
5
Umbria earth
quake '97
Poland floods '97
Easter fl
oods England '9
8
Sudan floods '98
Non-reimbursedlosses
Governmentassistance
Insuredlosses
IIASA: Linneroth-Bayer et al. 2003 Mantaye 2000
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Public-private insurance systems for developing countries?
Public-private insurance systems are in place mainly in developed countries US, France, Norway, New Zealand and Japan
Some important exceptions: Turkish Catastrophe Insurance Pool(TCIP) Puerto Rican reserve fund Proposed for Caribbean
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Summary
Significant advantages to pro-active risk management
Government’s decision to purchase risk financing instruments contingent on size and existence of financing gap and on costs and benefits of filling that gap
Risk transfer is negligible for households and small businesses in developing countries
Governments have three important roles to play: Direct post-disaster relief Partners in public-private insurance systems Subsidizing risk transfer for poor households and
smallbusinesses