The Roles of Government and The World Bank Rodney Lester World Bank Istanbul December 8, 2005

Risk is increasing

The frequency and economic severity of losses has been increasing Direct Losses India $US millions

Country Strategies that Should Plan for Disasters Do Not

But extremes relative to expected losses can invalidate this approach Average annual loss summary State All perils $US mill. Andhra Pradesh 82.9 Gujarat64.9 Maharasthra2.8 Orissa43.2 Probable Maximum Loss Summary (US$ Million )StatePeril Combined assets Andhra Pradesh All Perils 921 Gujarat 1,009 MaharasthraEarthquake59 Orissa 479

Particularly where the loss is large relative to the economy South West Pacific Loss Exceedance

Maldives after the tsunami - ex post financing Public finances (in percent of GDP) Revenue (including grants) Expenditure For reconstruction Overall balance Net domestic financing Foreign financing Additional external financing requirement pre tsunami 2005 post tsunami 2006

Solutions

Building the country risk management model

Building the ex ante funding model Donors GovernmentPrivate Reinsurance/ Cat Bond Markets Cat. Pool Insurers, Property Lenders Small business Post-disaster Subsidized Loan and Grant Facility Lifeline infrastructure, the poor and disadvantaged Response Capacity, Mitigation Incentives Risk Management Agency Donors Middle class housing Public ResponsibilityPrivate Responsibility

The extreme case – Florida – 5 of the ten worst US property losses in hisory - and exposure is increasing rapidly

Outcome (to date) ► No State commitment – FHFC can call on insurers ► FHFC offers $15 billion XS of $4.5 billion ► Citizen’s has 34% of market plus ► Increasing hurricane proofing of new construction

The World Bank Role

Creating awareness Hotspots Report

Developing its own liquidity instrument – Contingent Hazard Recovery & Management Loan (CHaRM) ► Adjustment characteristics ► Rapidly disbursing ► Conditionalities based on risk management capacity being built ► Response capacity in place ► Post disaster national accounting system in place ► Risk management institution in place and active ► Etc ► Not in CAS envelope – but post disaster adjustment capacity ► Deferred front end fee ► Low commitment fee ► Link to risk management TA ► Long repayment and grace periods

Fostering PPPs and acting as mediator ► Appropriate legal and political environment – needs leadership ► Appropriate organization – private sector needs sufficient freedom to do job ► Enforceable contracts and clear performance metrics ► Revenues priced at economic levels ► Support of participants, including end users ► The right partners – technical and financial capacity Source; Council for Public Private Partnerships

Being there when the disaster occurs ► Immediate loss assessments ► Coordinating donors ► Designing rehabilitation and reconstruction program with partner country ► Rebuilding ► Trauma counselling ► Building response capacity ► Developing future financing plan ► Developing and implementing mitigation strategies

To do nothing is a policy decision