1. Session 2 World Bank Institute J. Bayer and R. Mechler
Financial Strategies for Managing the Economic Impacts of Natural Disasters
Session 2 World Bank Institute J. Bayer and R. Mechler
Comprehensive Disaster Risk Management Framework National Disaster Management Systems  1 1 1

2. Global losses are increasing
Source: Munich Re 2004
Comprehensive Disaster Risk Management Framework National Disaster Management Systems 

3. Impacts of disasters in developed and developing countries
Source: Munich Re 2000
Comprehensive Disaster Risk Management Framework National Disaster Management Systems 

4. Pre-event disaster risk management cycle
Risk Identification and
Assessment
Catastrophe Risk
Risk Control
Cycle
Mitigation
Residual Risk
Risk Financing
Comprehensive Disaster Risk Management Framework National Disaster Management Systems 

5. Risk control mitigation and risk financing
Natural
natural
natural
natural
Hazard
hazard
hazard
hazard
Financial
Physical
Damage
damage
damage
damage
Vulnerability
Loss
Vulnerability
Exposure
exposure
exposure
exposure
Mitigation
Financial
Instruments
Incentives
Comprehensive Disaster Risk Management Framework National Disaster Management Systems 

6. Loss sharing and risk transfer
Victims
Public Sector
Households Businesses Agriculture
Informal sector
Family, neighbors
Government
Collective loss
sharing
Private Market
Risk Transfer
Donors and Lenders Domestic and International assistance International Financial Institutions
Comprehensive Disaster Risk Management Framework National Disaster Management Systems 

7. Should governments insure?
Government losses and financing
Obligations government
for storm and flood risk
Sum financing
1400
1200
1000
financing gaps
800
Losses [USD]
600
400
200
1 in 10 years
1 in 50 years
1 in 100 years
1 in 200 years
1 in 500 years
Events
Comprehensive Disaster Risk Management Framework National Disaster Management Systems 

8. Risk transfer for households and businesses in developing countries?
Commercial insurance is costly and plagued by moral hazard, therefore it is advisable only if
It is affordable or there is assistance to very poor households, farms and other businesses
There are no less costly alternatives
It is tied to loss reduction
Comprehensive Disaster Risk Management Framework National Disaster Management Systems 

9. Losses reimbursed from insurance and government
Assistance as a percentage of direct losses
100%
90%
80%
44%
51%
57%
57%
70%
61%
Non-
reimbursed
60%
84%
losses
50%
Government
40%
assistance
30%
20%
Insured
10%
losses 0%
Poland floods '97
Sudan floods '98
Kobe earthquake '95
Umbria earthquake '97
Northridge earthquake '94
Easter floods England '98
IIASA: Linneroth-Bayer et al Mantaye 2000
Comprehensive Disaster Risk Management Framework National Disaster Management Systems 

10. Public-private insurance systems for developing countries?
Public-private insurance systems are in place mainly in developed countries
US, France, Norway, New Zealand and Japan
Some important exceptions:
Turkish Catastrophe Insurance Pool(TCIP)
Puerto Rican reserve fund
Proposed for Caribbean
Comprehensive Disaster Risk Management Framework National Disaster Management Systems 

11. Summary Significant advantages to pro-active risk management
Government’s decision to purchase risk financing instruments contingent on size and existence of financing gap and on costs and benefits of filling that gap
Risk transfer is negligible for households and small businesses in developing countries
Governments have three important roles to play:
Direct post-disaster relief
Partners in public-private insurance systems
Subsidizing risk transfer for poor households and small businesses
Comprehensive Disaster Risk Management Framework National Disaster Management Systems