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New Mechanisms for financing New Mechanisms for financing physical and financial protectionphysical and financial protection
Financing disaster riskFinancing disaster riskSession 4.3Session 4.3
World Conference on Disaster ReductionWorld Conference on Disaster Reduction1818--22 January, Kobe, Hyogo, Japan22 January, Kobe, Hyogo, Japan
Thursday 20 January (Thursday 20 January (NunobikiNunobiki Room, 10Room, 10--12 hours)12 hours)
The need for financial protection The need for financial protection instrumentsinstruments
•• Insufficient use of insurance and other Insufficient use of insurance and other risk transfer instrumentsrisk transfer instruments
–– ECLACECLAC’’ss observation over 30 yearsobservation over 30 years–– The lessons from the 2004 Caribbean The lessons from the 2004 Caribbean
hurricane seasonhurricane season–– The implications from the Indian Ocean The implications from the Indian Ocean
disasterdisaster
Estimating the socioEstimating the socio--economic effects of disasterseconomic effects of disasters
Secondary Secondary (global and cross cutting) (global and cross cutting)
effectseffectsEffects on people,Effects on people,
& the flow of goods & services& the flow of goods & services
Effects on people &Effects on people &stock of propertystock of property
DirectDirect damagedamage
Indirect lossesIndirect losses
Impact on macroImpact on macro--socio socio economic variables*economic variables*
Physical and financial Physical and financial protectionprotection
•• Save livelihoods and protecting Save livelihoods and protecting infrastructureinfrastructure
•• Profiles of human toll, damage and Profiles of human toll, damage and losses point to need for new, diverse losses point to need for new, diverse forms of financing disaster riskforms of financing disaster risk
•• Face vulnerability of small, less Face vulnerability of small, less diversified economiesdiversified economies
Impact of 2005 Hurricane Impact of 2005 Hurricane season in the Caribbeanseason in the Caribbean
H urricane season 2004. D amage distribution by country
Hurricane IvanCaym an Is lands
56%
Hurricane Jeanne
Haiti5% Hurricane Ivan
Jam aica10%
Hurricane IvanGrenada
15%
Tropical S torm Jeanne
Dom inican Republic
5%
Hurricanes Frances and
JeanneB aham as
9%
Damage profile in the Caribbean Damage profile in the Caribbean Hurricane 2004 seasonHurricane 2004 season
Com position of dam age and losses
Productive Sectors
35.2%
Infrastructure 15.6%
Social Sectors47.5%
Environm ent
1.3%
Em ergency and relief 0.4%
Relative and absolute level of disaster damage
889595
296551
3,432
296
212.00%
8.00%
1.70%
10.50%
183.00%
730.00%
0500
1,0001,5002,0002,5003,0003,5004,000
Grenada Jamaica DominicanRepublic
Bahamas CaymanIslands
Haiti1.00%
10.00%
100.00%
1000.00%
US$ million% of GDP
Impact on GDP expected Impact on GDP expected performance (2004performance (2004--2005)2005)
MINUS 1.4% GrenadaMINUS 0.7% Jamaica
MINIMAL IMPACT Dominican Republic
MINUS 1.7% Bahamas
MINUS 1.9% Cayman Islands
NEGLIGIBLE Haiti
As affected in Banda As affected in Banda AcehAceh (Indonesia, (Indonesia, Dec. 26, 2004)Dec. 26, 2004)
The The ““double whammiesdouble whammies”” of of IndonesiaIndonesia
•• The The ““double whammiesdouble whammies”” of Indonesia (as different of Indonesia (as different from other Indian Ocean affected countries):from other Indian Ocean affected countries):-- Earthquake (9.5 Richter scale) and Tsunami (with 15 min. Earthquake (9.5 Richter scale) and Tsunami (with 15 min.
warning and three waves within a two hour period)warning and three waves within a two hour period)-- A disaster on top of a conflict (as also in Sri Lanka)A disaster on top of a conflict (as also in Sri Lanka)-- Vulnerability exposed by human intervention in the way the Vulnerability exposed by human intervention in the way the
city and city and AcehAceh and North Sumatra villages and towns and North Sumatra villages and towns developed (on floodplains, on beaches not protected by developed (on floodplains, on beaches not protected by mangroves and other vegetation) and hazard related to mangroves and other vegetation) and hazard related to geology (shallowness of epicenter of original earthquake, geology (shallowness of epicenter of original earthquake, expansion and fracture of fault near the Sumatra coast expansion and fracture of fault near the Sumatra coast causing slope collapses undersea increasing the force of causing slope collapses undersea increasing the force of water pressure and wave force)water pressure and wave force)
**** **
** TIMETIME
GR
OSS
CAP
ITAL
FO
RM
ATIO
NG
RO
SS C
APIT
AL F
OR
MAT
ION
DEVELOPING COUNTRIIESDEVELOPING COUNTRIIESINDUSTRIALIZED COUNTRIESINDUSTRIALIZED COUNTRIES
** DISASTERDISASTER
THE EFFECT OF SUCCESSIVE DISASTERS ON THE EFFECT OF SUCCESSIVE DISASTERS ON CAPITAL FORMATIONCAPITAL FORMATION
Adapted from Mora, Adapted from Mora, ““El El impactoimpacto de de loslos desastresdesastres, , aspectosaspectos socialessociales, , polpolíítifcostifcos econeconóómicosmicos, , ambientalesambientalesy y susu relacirelacióónn con el con el desarrollodesarrollo de de nuestrosnuestros papaíísesses (BID, 1999)(BID, 1999)
The use of actuarial, economic and The use of actuarial, economic and statistical tools to determine riskstatistical tools to determine risk
•• Value of assets as a means to determine Value of assets as a means to determine insurance costs (considering reconstruction insurance costs (considering reconstruction costs are always higher than replacement costs are always higher than replacement prices or book value)prices or book value)
•• Value of economic costs (beyond loss of Value of economic costs (beyond loss of business, incorporating increased costs and business, incorporating increased costs and social impact)social impact)
•• Return period or statistical probability for Return period or statistical probability for parametric insurance (scientific information, parametric insurance (scientific information, prediction models of probability as criteria)prediction models of probability as criteria)
Free riding in risk transferFree riding in risk transfer
•• The public / private level of internalising The public / private level of internalising risk and transferring its costs (as risk and transferring its costs (as materialized in disasters)materialized in disasters)
•• The national / international levelThe national / international level•• The need for costThe need for cost--sharing of public sharing of public
goods pricegoods price
What instruments are What instruments are availableavailable
•• CAT bondsCAT bonds•• Disaster contingency fundsDisaster contingency funds•• Insurance and reinsuranceInsurance and reinsurance•• Possible levels of coverage (geographical, regional, Possible levels of coverage (geographical, regional,
national)national)–– Pooling of community resources for Pooling of community resources for microfinancingmicrofinancing and and
micro insurance (raise leverage to enter formal insurance micro insurance (raise leverage to enter formal insurance market)market)
–– Public support mechanisms for insurance protection Public support mechanisms for insurance protection (guarantee mechanisms for lack of property rights or tenure (guarantee mechanisms for lack of property rights or tenure in informal, in informal, SMEsSMEs))
–– Pooling of national resources at national level to reduce cost Pooling of national resources at national level to reduce cost of insurance and share riskof insurance and share risk
Thank youThank you
www.eclac.clwww.eclac.clwww.eclac.cl/mexicowww.eclac.cl/mexicowww.cepal.orgwww.cepal.orgricardo.zapata@[email protected]