Regional Catastrophe Risk Pooling Among APEC …mddb.apec.org/Documents/2015/FMP/SFOM13/15_sfom13_021.pdf · DISASTER RISK FINANCING AND INSURANCE PROGRAM (DRFIP) Regional Catastrophe

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2015/SFOM13/021 Session: 5

Regional Catastrophe Risk Pooling Among APEC Members

Purpose: Information

Submitted by: World Bank

13th Senior Finance Officials’ Meeting Bagac, Philippines

11-12 June 2015

DISASTER RISK FINANCING AND INSURANCE PROGRAM (DRFIP)

Regional Catastrophe Risk Pooling among APEC Members

June

12

Proposal for a Feasibility Study

Takashi Miyahara

(on Behalf of Olivier Mahul)

World Bank

APEC Senior Finance Officials Meeting


Financial protection against climate risk matters

• The financial impact from disaster and climate risks are rapidly

increasing.

• The World Bank Group and GFDRR are partnering with over 40

countries on Disaster Risk Finance initiatives to help governments,

businesses, and households manage the financial impacts of

disaster and climate risks.


Financial protection is a key component of DRM

Pillar 2: Risk Reduction

Pillar 3: Preparedness

Pillar 4: Financial Protection

Pillar 5: Resilient Recovery

Pillar 1: Risk Identification Risk assessment and risk communication

Structural and non-structural measures;

infrastructure, land-use planning, regulation

Early warning systems; support of emergency

measures; contingency planning

Assessing and reducing contingent liabilities;

budget appropriation and execution; ex-ante and

ex-post financing instruments

Resilient recovery and reconstruction policies; ex-

ante design of institutional structures


APEC economies are highly exposed to natural disasters, with disaster losses in excess of US$100billion every year

Source: EM-DAT Database (2005-2014)

Average annual historical disaster losses (2005-2014), by country (US$ billion)


Building comprehensive financial protection against natural disasters

• A comprehensive strategy builds on a combination of national and regional

financial solutions to ensure timely and efficient access to funding in the wake

of a disaster

• National disaster risk financing strategy

• Catastrophe risk layering

• Post disaster budget execution

• Insurance of key public assets/infrastructure

• Regional catastrophe risk pooling facility

• Securing immediate access financial resources post disaster

Emergency relief and early recovery

Recovery/reconstruction of critical buildings and infrastructure (e.g., bridges)

• Risk pooling benefits: regional reserves and catastrophe risk transfer solutions


National disaster risk finance strategy –Optimal disaster risk layering


Regional catastrophe risk pooling facility

Premium Payout

Insurance Payout

Insurance Premium

Reserves

Reinsurance/ART(Purchased on international

financial markets)

Country

Country

Country

Country

Country

Country

Country

Growth

Dedicated facility

owned/managed by APEC

members

Over time accumulate financial

reserves, allowing participating

countries to finance the first

losses from joint reserves

Transfer excess aggregate losses

to international

capital/reinsurance markets

Acts as a regional platform for

capacity building, innovative

solutions, standardization


Proposed work plan (within 6-12 months)

• Establishment of a working group with interested APEC members

• Guides technical work

• Allows for country consultations

• Facilitates policy discussion

• Feasibility study

• Explores the feasibility and benefits of regional catastrophe risk pooling mechanisms within national

disaster risk financing strategies

• Presents options for consideration to APEC members

• Action plan

• Outlines preferred options

• Presents next steps for implementation


Next steps to be discussed

• Country commitments

• Express of interest by APEC members

• Country data

• Exposure data

• Funding

• Consultation of participating APEC members

• Data collection

• Technical, legal/institutional and operational analysis


Further information

Olivier Mahul,

Head, Disaster Risk Finance

Program Manager, DRFIP

World Bank

[email protected]

http://www.worldbank.org/en/programs/

disaster-risk-financing-and-insurance-program

mailto:[email protected]


Multi-country risk pooling


Disaster Risk Finance around the world


Caribbean Catastrophe Risk Insurance Facility

Development Challenge

• Small economies are highly exposed to natural disasters

and suffer large shocks as a % of GDP

DRF Solution

• CCRIF was the world’s first multi-country risk pool,

offering unique hurricane and earthquake coverage to 16

participating governments in the Caribbean Region.

• Rapid payouts linked to impact of a hurricane or

earthquake. CCRIF also introduced an excess rainfall

product in 2014.

• 12 payouts to date totaling $34m to 8 member

governments

• CCRIF has recently been expanded to include central

American countries, with Nicaragua this first new member


Pacific Catastrophe Risk Insurance Pilot

Development Challenge

• Small economies are highly exposed to natural disasters

and suffer large shocks as a % of GDP

DRF Solution

• Pacific Catastrophe Risk Insurance Pilot (2012) pooled risk

approach provides coverage for up to a maximum of $45m

• Rapid payouts linked to impact of a tropical cyclone,

tsunami or earthquake

• Country-specific catastrophe risk policies taken to the

market as single, well-diversified portfolio

• 2 payouts to date: Tonga received $1.27m following

Cyclone Ian (2014) and Vanuatu received $1.97m following

Cyclone Pam (2015)

Vanuatu

Storm Center

Cyclone Pam

March 13, 2015