Paul Freeman, Leslie Martin Nov 15-16, 2001 Regional Policy Dialogue Inter-American Development Bank National Systems and Institutional Mechanisms for the Comprehensive Management of Disaster Risk Paul Freeman, Leslie Martin Nov 15-16, 2001

Background In Latin America and the Caribbean, average frequency of 40 significant disasters a year Region second only after Asia in the number of disasters impacting the region

Vulnerability Disasters due to interaction between human settlement and the natural environment: Settlement in high-risk areas Limited enforcement of building codes Deforestation Reducing the toll of natural disasters requires a comprehensive approach that accounts for the causes of a society’s vulnerability to disasters

Comprehensive Key Elements of Risk Management Pre-Disaster Phase Post-Disaster Phase Risk Identification Mitigation Risk Transfer Preparedness Emergency Response Rehabilitation and Reconstruction Hazard assessment (frequency, magnitude and location) Physical/structural mitigation works Insurance/reinsurance of public infrastructure and private assets Early warning systems. Communication systems Humanitarian assistance Rehabilitation/reconstruction of damaged critical infrastructure Vulnerability assessment (population and assets exposed) Land-use planning and building codes Financial market instruments (catastrophe bonds, weather-indexed hedge funds) Contingency planning (utility companies/ public services) Clean-up, temporary repairs and restoration of services Macroeconomic and budget management (stabilization, protection of social expenditures) Risk assessment (a function of hazard and vulnerability) Economic incentives for promitigation behavior Privatization of public services with safety regulation (energy, water, transportation, etc.) Networks of emergency responders (local/ national) Damage assessment Revitalization for affected sectors (exports, tourism, agriculture, etc.) Hazard monitoring and forecasting (GIS, mapping, and scenario building) Education, training and awareness about risks and prevention Calamity Funds (national or local level) Shelter facilities. Evacuation plans Mobilization of recovery resources (public/ multilateral/ insurance) Incorporation of disaster mitigation components in reconstruction activities

National Disaster Systems The task facing policy makers today is to create an effective national system with a comprehensive vision that engages senior government policy makers, supports local decision making and initiatives, and promotes the institutional conditions necessary for the constructive involvement of private-market initiatives

Country Experiences USA, Japan, France, UK: Colombia, Nicaragua Successful market-based risk transfer programs Colombia, Nicaragua Towards comprehensive government-led systems Hungary, India Towards community-driven projects

Tradeoffs Government-directed: Community-directed Structural mitigation projects Reconstruction financing, risk transfer Bureaucratic Community-directed Less comprehensive Nonstructural mitigation projects Fewer financing alternatives

Successful National Systems Explicit and appropriate national disaster strategy integrates with national policy on development and environmental protection based on vulnerability assessments Key players part of disaster management process - finance ministry - local community leaders, NGOs - private market actors Provisions to ensure sufficient resources for key players to carry out their responsibilities

National Disaster Strategy Legislation Allocating responsibilities Integrating with development goals Based on vulnerability assessments

Involving Key Players National Disaster Council: identifies priorities and channels resources National Disaster Management Office: administers day-to-day operations Operations Control Group: prepares and coordinates emergency response

Role of Finance Ministries Participation of finance ministries: helps to ensure funding for the institutional framework facilitates the incorporation of disaster management into development policy and provides incentives for financing mitigation projects.

Financial Resources On-going operation of a national system Providing incentives for funding risk mitigation projects mitigation occurs when the interests of the ultimate risk bearer are aligned with the party incurring the cost of mitigation Financing post disaster reconstruction reserve funds contingent loans risk transfer (reinsurance, CAT bonds)

Risk Transfer In the higher income countries, 30% of the loss from natural hazards is insured. In the poorer countries, insurance covers 1% of the losses from natural hazards

Risk Transfer Advantages of insurance: Limitations of insurance permits the spreading of risk between parties; guarantees victims compensation for losses reduces the variance of risk for each person permits the segregation of risk encourages loss reduction measures provides a tool to monitor and control behavior Limitations of insurance premiums may not reflect risk: less equity and less incentive to mitigate demand for insurance may be low due to misperceived risk or high discount rates moral hazard may increase losses Insurance may not be available in highest-risk areas

Political Sustainability recognized success of the system in reducing vulnerability to and speeding recovery from disasters integration with overall development goals legislation supporting the national disaster strategy programs to maintain an adequate perception of risk, particularly in periods when few disasters happen. constituencies that support the political agenda needed to implement and carry out a program frame the natural disaster system as a poverty issue structures to make different organizations and individuals accountable for their disaster management responsibilities when events strike.

Financial Sustainability Political support Committing to long-term financing contracts with external parties Responding to pressure from the international finance community

Conclusion A comprehensive approach requires the commitment of the national government and accommodates and supports local decision making and initiatives. That commitment needs the attention of those directing development policies. As well, the role of risk transfer as a de-centralized, market initiative is important and, in the case of high exposure, will rely on a supporting role by the national government.