WORLD BANK GROUP DEVELOPMENT SOLUTIONS for DISASTER RISK FINANCE Sustainable Solutions for Financial Protection Against Disaster and Climate Risks The financial impact of disasters caused by natural hazards is growing. Financial losses from natural disasters continue to rise, with developing countries and their low-income populations feeling the greatest effects. Direct financial loss reached an average of US$165billion per year during the last 10 years. This compares to about US$135 billion of official development assistance in 2013. Natural disasters are increasingly recognized by governments as an important source of contingent liability and budget /// volatility. They can generate fiscal risk that results in deviations of fiscal outcome. Those risks create direct contingent liabilities (such as /// the costs of restoring public buildings and infrastructures affected by a disaster) and indirect contingent liabilities (such as ad hoc financial support to the affected population). When they materialize, natural disasters can create major budget volatility, especially in the short term, as governments need to finance emergency assistance and early recovery activities. Effective disaster risk finance instruments contribute to the achievement of the World Bank Group’s twin goals. The 2014 /// ////// World Development Report: Managing Risk for Development included disaster risk financing and insurance as an important instrument for the international development agenda. Effective financial protection helps safeguard gains from poverty reduction and inclusive growth against shocks from natural disasters. //////Disaster Risk Finance tools/instruments help countries improve their financial resilience against climate and disaster risks, as part of the broader disaster risk management and climate change agenda. It implements sustainable and cost-effective financial /// protection policies and operations against natural disasters. Sovereign Disaster Risk Finance helps increase the capacity of sovereign, sub-sovereign and SOE entities to better plan, prepare for, and /// /// manage the financial impacts of natural disasters. Activities include: • Quantify disaster-related contingent liabilities; • Build disaster risk layering strategy to match post-disaster short- and long-term financing needs, that combines financial tools including reserves/savings, contingent loans, and sovereign market-based risk transfer solutions; • Strengthen public financial management for mobilizing, allocating, and disbursing funds following disasters; • Enhance disaster risk insurance programs of public buildings and infrastructure; • Develop tools/approaches for crisis response including support to scalable social protection. Disaster Risk Insurance Market Development helps governments develop efficient disaster risk markets, and leverage private sector /// /// capital and expertise through public private partnerships. It reduces the disaster-related contingent liabilities of governments by promoting Risk the transfer of natural disaster risks to the private insurance Layering market for homeowners, small and medium enterprises, and farmers and herders. Activities include: International Support • Develop and enhance risk market Low Frequency/ High Severity Risk Trans er infrastructure, including data collection Sovereign Risk Trans er (e.g. Cat Bond/Cat Swap, (re)insurance) and management, to support competitive Insurance o Public Assets and sustainable domestic disaster risk insurance markets; • Enhance legal and regulatory framework Contingent Credit Lines Post Disaster Credit for disaster risk insurance; Risk Retention • Develop domestic insurance pools High Frequency/ Low Severity to efficiently aggregate and transfer Government Reserves, Contingency Budget / Funds catastrophe risks. Emergency Funding Reconstruction Financing Disaster Risk Finance brings together the Analytical & Advisory, Financial, and Convening services of the World Bank Group. DRF Products Project Description Example Catastrophe risk modeling for Collect and manage risk and loss data; analyze historical loss The Paci ic Catastrophe Risk Assessment and Financing Initiative financial solutions data with actuarial tools; develop catastrophe risk models to (PCRAFI) includes a database o over 3.5 million geo-re erenced assess potential extreme losses. buildings and in rastructure in 15 Paci ic island countries. It was A N A LY T I C A L & A DV I S O RY used to develop the PCRAFI insurance program. Financial protection: diagnosis, De ine policy priorities; clari y and assess the state’s contingent In 2014, the National Treasury o the Philippines inalized a strategy and action plan liabilities to disasters and potential post-disaster unding gaps; national inancial protection strategy and the Government o SERVICES identi y short-term actions or implementation. Panama adopted a National Strategic Framework or the Financial Management o Disaster Risk through presidential decree in 2014. Analytical tools for financial Actuarial analysis to support in ormed decisions on disaster risk Working with the government o Mexico to more e ciently decision-making insurance; tools or cost-bene it analysis o DRF strategies; tools combine risk trans er and retention instruments; helping the or evaluating and structuring risk trans er mechanisms. government o Indonesia select coverage or each region or a national parametric risk trans er product. Public financial management of Establish transparent, timely, and e ective post-disaster budget Development o a manual on post disaster budget execution or natural disasters execution and acquittal mechanisms. the Government o Tonga and other Paci ic Island Countries. Catastrophe risk insurance Improvements to legal and regulatory rameworks to oster Strengthening reporting requirements and reserving in Peru, supervision private catastrophe risk insurance solutions. Vietnam and the Philippines. Reserves/Contingency Funds National disaster unds Operations manual or State Reserve Fund in Lao PDR. Budget reserves and contingent budget lines Contingent Grants/Loans World Bank Development Policy Loan with Catastrophe De erred World Bank Development Policy Loan with Catastrophe De erred Draw Down Option (Cat DDO) Draw Down Option (Cat DDO) IDA contingent components and Crisis Response Window IDA contingent components and Crisis Response Window Contingent investment projects Contingent investment projects Insurance and Capital Market Catastrophe Bonds and Capital-At-Risk Notes US$450 million weather derivative against risk o drought and FINANCIAL SERVICES Solutions Intermediation or catastrophe swaps and weather derivatives high oil prices in Uruguay. (Sub) national catastrophe insurance Advisory and intermediation services to establish regional WBG supported sovereign disaster risk insurance pools in the pools sovereign or sub–sovereign insurance pools Caribbean and Paci ic include 21 countries and provide total coverage o over US$645 million annually. National property catastrophe Establish sustainable property catastrophe risk insurance The South East Europe and Caucasus Catastrophe Risk Insurance insurance pools programs based on public private partnerships. Facility builds market in rastructure or insurance. Insurance of public assets Increase/improve insurance o public assets through advisory In Colombia, the government uses standardized terms services, good practice templates and conditions to insure PPP worth US$38 billion based on international best practice Agricultural insurance Establish sustainable agricultural insurance programs and India’s weather-based crop insurance covered 11.6 million armers agricultural insurance pools through PPPs. in 2014. In A rica, 270,000 armers were covered under a weather-based crop insurance in 2014. Financing of scalable social Integrate scalable contingent component in social protection Kenya’s Hunger Sa ety Net Program reached an additional 1 protection programs and secure unding million people in a 2015 drought. Convening power Facilitate cooperation among countries, private sector and Convening o Caribbean and Central American states to enable development partners the expansion o the Caribbean Catastrophe Risk Insurance Facility CO N V E N I N G S E R V I C E S High-level Policy Dialogue In orm international policy dialogues on DRF with country G20 Initiative on Disaster Risk Management / Disaster Risk experiences. Financing and Insurance in 2012, including joint publication Plat orm or policy dialogue and establishment o good practices. between the Government o Mexico and the World Bank. Inputs to G7 Initiative on Climate Risk Insurance Contribution on DRF to regional organizations such as APEC and ASEAN Publications Share country experiences, lessons learned, and research. 2014 publication “Financial Protection Against Natural Disasters” Materials or capacity building and development o good practice bringing together World Bank expertise in an operational standards in DRF. ramework to guide countries in developing and implementing Support or the development o high level policy on strategy comprehensive inancial protection policies. Disaster Risk and Insurance Colombia: Policy Strategy or Public Financial management o natural Disaster Risk Panama: Strategic Framework or the Financial Management o Disaster Risk DRAFT 09/09/15 Disaster Risk Finance as One World Bank Group. Disaster Risk Finance builds on close collaboration between Global Practices (GP) and Cross-Cutting Contacts Solution Areas (CCSA) to provide World Bank clients with One World Bank Group Solutions against /// /// Olivier Mahul natural disasters. Head, Disaster Risk Finance, Finance & Markets GP • Disaster Risk Financing and Insurance Program (DRFIP) in Finance and Markets GP leads the /// /// Niels Holms-Nielsen disaster risk finance dialogue with clients regarding the financial impact of natural disaster risks and Global Lead, Disaster Risk helps countries design and implement comprehensive disaster risk financing strategies; Management, Social, Urban, Rural and Resilience GP • Disaster Risk Management (DRM) in Social, Urban, Rural and Resilience GP leads disaster risk /// /// Miguel Navarro management dialogue with clients in collaboration with sector colleagues and specialists to define Head, Financial Advisory and vulnerabilities and programs for disaster risk management, including prevention and risk reduction. Banking, Treasury VP • Treasury (TRE) leads the dialogue with the capital and reinsurance markets, structures and executes /// /// Francis Ghesquiere the financial transactions for the clients; Head, Global Facility for Disaster Reduction and • Global Facility for Disaster Reduction and Recovery (GFDRR) hosted by the World Bank within Recovery (GFDRR) /// /// the Climate Change CCSA convenes development partners, provides grants and seed financing to enable the engagement with clients and the technical studies and knowledge solutions to help define the disaster risk management framework. Further information Disaster Risk Finance interacts closely with other Global Practices such as Social Protection and /// /// /// ////// DRFIP website: Labor; Agriculture; Macroeconomics and Fiscal Management; Water; Energy and Extractives. Disaster Risk http://www.worldbank.org/drfi Finance also interacts with IFC on catastrophe risk insurance solutions with the private sector. GFDRR website: http://www.gfdrr.org DRM website: /// World Bank Group added value to clients /// http://www.worldbank.org/ en/topic/disasterriskmanagement • A trusted partner with global reach and country experience TRE website: http://treasury.worldbank.org • Unique ability to bring together the full spectrum of analytical, advisory, financial, and convening services • Experience supporting innovative solutions at macro (country) and micro (household, SME, farmer) levels • Technical expertise and knowledge across disciplines and sectors • Market knowledge, structuring experience, relationships with major financial institutions • Ability to leverage AAA credit rating to achieve larger volumes, longer maturities, and lower costs • Global convening platform to establish guidelines, document good practices and share knowledge 09/09/15