Disaster Risk Financing

140 Pages·2015·1.7 MB·English

Disaster Risk Financing
A globAl suRvey oF pRActices AnD chAllenges
contents
Disaster Risk Financing
Executive summary
Chapter 1. Financial management of disaster risks
A globAl suRvey oF pRActices
Chapter 2. Assessment of disaster risks, financial vulnerabilities and the impact of disasters
AnD chAllenges
Chapter 3. Private disaster risk financing tools and markets and the need for financial preparedness
Chapter 4. G overnment compensation, financial assistance arrangements and sovereign risk financing
strategies
Chapter 5. Key priorities for strengthening financial resilience
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21 2015 02 1 p

Disaster Risk Financing
A GLOBAL SURVEY OF PRACTICES
AND CHALLENGES
This work is published on the responsibility of the Secretary-General of the OECD. The
opinions expressed and arguments employed herein do not necessarily reflect the official
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Please cite this publication as:
OECD (2015), Disaster Risk Financing: A global survey of practices and challenges, OECD Publishing, Paris.
http://dx.doi.org/10.1787/9789264234246-en
ISBN 978-92-64-23423-9 (print)
ISBN 978-92-64-23424-6 (PDF)

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FOREWORD
Foreword
D
isasters present a broad range of human, social, financial, economic and environmental impacts,
with potentially long-lasting, multi-generational effects. The financial management of these impacts
is a key challenge for individuals and governments in developed and developing countries. G20
Finance Ministers and Central Bank Governors and Asia-Pacific Economic Co-operation (APEC)
Finance Ministers have recognised the importance and priority of disaster risk management (DRM)
strategies and, in particular, disaster risk assessment and risk financing.
The Organisation for Economic Co-operation and Development (OECD) has supported the
development of strategies for the financial management of natural and man-made disaster risks,
under the guidance of the High-Level Advisory Board of the OECD International Network on
Financial Management of Large-scale Catastrophes and the Insurance and Private Pensions
Committee. This work has included the elaboration of an OECD Recommendation on Good
Practices for Mitigating and Financing Catastrophic Risks as well as the organisation of a
number of global events aimed at sharing experience on approaches to disaster risk financing (DRF)
and identifying key challenges where international co-operation would be beneficial. In co-operation
with other international organisations, the OECD has also responded to the G20 and APEC through
the development of the G20/OECD Methodological Framework for Disaster Risk Assessment
and Risk Financing and a report on Disaster Risk Financing in APEC Economies: Practices and
Challenges.
Disaster Risk Financing: A Global Survey of Practices and Challenges builds on this work
by providing an overview of the disaster risk assessment and financing practices of a broad range of
economies relative to the guidance elaborated in G20/OECD Framework for Disaster Risk
Assessment and Risk Financing. This report is based on input provided by OECD and APEC
member economies in response to an APEC-OECD survey questionnaire as well as research
undertaken by the OECD and other international organisations. The report provides an overview of
the approaches that economies facing various levels of disaster risk and economic development have
taken to managing the financial impacts of natural and man-made catastrophes.
Disaster Risk Financing: A Global Survey of Practices and Challenges benefited from
particular contributions by Prof Alberto Monti, member of the OECD High-Level Advisory Board, and
Ms Rachel Anne Carter, OECD consultant. The report also benefited from the support and input of
the OECD’s High-Level Advisory Board on the Financial Management of Large-Scale Catastrophes,
the Insurance and Private Pensions Committee, the Asian Development Bank, World Bank and the
United Nations Office for Disaster Reduction (UNISDR).
DISASTER RISK FINANCING: A GLOBAL SURVEY OF PRACTICES AND CHALLENGES © OECD 2015 3

TABLE OF CONTENTS
Table of contents
Abbreviations and acronyms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Chapter 1. Financial management of disaster risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
G20/OECD Methodological Framework for Risk Assessment and Risk Financing . . . . 16
Disaster Risk Financing in APEC Economies: Practices and Challenges. . . . . . . . . . 18
Disaster Risk Financing: A Global Survey of Practices and Challenges. . . . . . . . . . . 19
Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Chapter 2. Assessment of disaster risks, financial vulnerabilities and the impact
of disasters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Understanding the economic and financial dimensions of disasters . . . . . . . . . . . 24
The quantification of disaster risks and losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Disaster risk assessment and modelling initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Assessment of financial vulnerabilities within the population and economy . . . . 41
Post-disaster damage and impact assessments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Implementation challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Chapter 3. Private disaster risk financing tools and markets and the need
for financial preparedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Private insurance and mitigating the cost of disasters. . . . . . . . . . . . . . . . . . . . . . . . 56
Public support for disaster insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Financial sector resilience and claims management . . . . . . . . . . . . . . . . . . . . . . . . . 86
Public awareness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Implementation challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Chapter 4. Government compensation, financial assistance arrangements
and sovereign risk financing strategies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Government compensation and financial assistance arrangements and a fair
and efficient deployment of funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Sovereign risk financing strategies: policy options for governments. . . . . . . . . . . . 115
Implementation challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
DISASTER RISK FINANCING: A GLOBAL SURVEY OF PRACTICES AND CHALLENGES © OECD 2015 5
TABLE OF CONTENTS
Chapter 5. Key priorities for strengthening financial resilience. . . . . . . . . . . . . . . . . . . . . . 129
Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
Tables
3.1. Key aspects of disaster insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
3.2. US State disaster insurance schemes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
3.3. Roles of government in disaster insurance schemes in selected economies . . . . 73
3.4. Scope of coverage under disaster insurance schemes in selected economies . . . 74
3.5. Key elements of agricultural insurance schemes (selected economies) . . . . . . 75
4.1. Funding formula for Canada’s DFAA (in CAD, Canadian dollars). . . . . . . . . . . . 106
4.2. Examples of government compensation/financial assistance arrangements. . . . 112
4.3. Approaches to financing government disaster risk . . . . . . . . . . . . . . . . . . . . . . . 117
4.4. Risk financing and risk transfer tools: main advantages and limitations. . . . . 117
5.1. Key priorities (identified by economies). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
Figures
2.1. Assessing disaster risk and financial vulnerabilities . . . . . . . . . . . . . . . . . . . . . . 25
2.2. Role of DRF strategies in strengthening financial resilience. . . . . . . . . . . . . . . . 25
3.1. Risk Allocation under Japan’s Earthquake Insurance Scheme . . . . . . . . . . . . . . 69
3.2. Thailand’s National Catastrophe Insurance Fund . . . . . . . . . . . . . . . . . . . . . . . . 70
6 DISASTER RISK FINANCING: A GLOBAL SURVEY OF PRACTICES AND CHALLENGES © OECD 2015
ABBREVIATIONS AND ACRONYMS
Abbreviations and acronyms
27F Earthquake and ensuing tsunami that struck Chile on 27 February 2010
AACH Chilean insurance association (Asociación de Aseguradores de Chile AG)
AAL Annual Average Loss
ADB Asian Development Bank
AFAD Prime Ministry Disaster and Emergency Management Authority (Turkey)
AGDRP Australian Government Disaster Recovery Payment
AI Authorized Institutions (Hong Kong, China)
AIC Agriculture Insurance Corporation of India Ltd.
APEC Asia-Pacific Economic Co-operation
APRA Australian Prudential Regulatory Authority
ARC Africa Risk Capacity
ARV Africa RiskView
ASEAN Association of Southeast Asian Nations
ASF Portuguese insurance and pensions supervisory authority
(Autoridade de Supervisão de Seguros e Fundos de Pensões)
AusAid Australian Agency for International Development
BCP Business Continuity Plan or Business Continuity Planning
BBK Federal Office of Civil Protection and Disaster Assistance
(Bundesamt für Bevölkerungsschutz und Katastrophenhilfe) (Germany)
BNHCRC Bushfire and Natural Hazards Cooperative Research Centre (Australia)
BNPB Indonesian disaster management agency
(Badan Nasional Penanggulangan Bencana)
CASEN Chilean national socioeconomic charateristics survey
(Caracterización Socioeconómica Nacional)
CAT-DDO Catastrophe Deferred Drawdown Option
CCR French public reinsurer (Caisse centrale de réassurance)
CCRIF Caribbean Catastrophe Risk Insurance Facility
CCS Spanish public insurer (Consorcio de Compensación de Seguros)
CDD Canadian Disaster Database
CEA California Earthquake Authority
CENAPRED Mexican disaster prevention centre (Centro Nacional de Prevención de Desastres)
CENEPRED Peruvian disaster assessment, prevention and reduction centre
(Centro Nacional de Estimación, Prevención y Reducción de Riesgos de Desastres)
CNSF Mexican national insurance and bond commission
(Comisión Nacional de Seguros y Fianzas)
CODISE Italian continuity of service working group (Continuità di Servizio)
CONHAZ Costs of Natural Hazards (European Union research project)
DISASTER RISK FINANCING: A GLOBAL SURVEY OF PRACTICES AND CHALLENGES © OECD 2015 7
ABBREVIATIONS AND ACRONYMS
CONSOB Italian securities and exchange commission
(Commissione Nazionale per le Società e la Borsa)
CLIMBS Cooperative Life Insurance and Mutual Benefit Services (Philippines)
CPIC Citizens Property Insurance Corporation (Florida, United States)
CRAICP Climate Risk Adaption and Insurance in the Caribbean Programme
CRED Centre for Research on the Epidemiology of Disasters
(Université catholique de Louvain, Belgium)
DaLA Damage and Loss Assessment (methodology)
DFAA Disaster Financial Assistance Arrangements (Canada)
DFID Department for International Development (United Kingdom)
DRA Disaster Recovery Allowance (Australia)
DRF Disaster Risk Financing
DRM Disaster Risk Management
DRP Disaster Recovery Plan
EENIP Extreme El Niño Insurance Product (Peru)
EM-DAT Emergency Events Database (CRED)
ENSO El Niño Southern Oscillation
EPIC Earthquake Protection Insurance Corporation of the Philippines
EQC Earthquake Commission (New Zealand)
EU European Union
Europa Re Europa Reinsurance Facility Ltd
FAO Food and Agriculture Organisation
FEMA Federal Emergency Management Agency (United States)
FONDEN Mexican natural disasters fund (Fondo de Desastres Naturales)
GDP Gross Domestic Product
GEF Global Environment Facility
GEM Global Earthquake Model
GFDRR Global Facility for Disaster Risk Reduction
GIS Geographic Information System
GIZ German technical co-operation agency
(Gesellschaft für Internationale Zusammenarbeit)
GLIDE Global Disaster Identifier Number
GPS Global Positioning System
GSIS Government Service Insurance System (Philippines)
GST Goods and Services Tax
HARITA Horn of Africa Risk Transfer for Adaptation
HKEx Hong Kong Exchange
HKMA Hong Kong Monetary Authority
IBLIP Index Based Livestock Insurance Project (Mongolia)
ICI Icelandic Catastrophe Insurance
ICRM Institute of Catastrophe Risk Management
(Nanyang Technological University, Singapore)
IFAD International Fund for Agriculture Development
IGME Spanish geological and mining institute (Instituto Geológico y Minero de España)
InaSAFE Indonesia Scenario Assessment for Emergencies
IRDA Insurance Regulatory and Development Authority (India)
IWE Industry-wide Exercise
8 DISASTER RISK FINANCING: A GLOBAL SURVEY OF PRACTICES AND CHALLENGES © OECD 2015