2011年-世界发展银行全球_Disaster_Risk_Financing___Case_Studies_14页_793kb

Summary of EAP DRM KnowledgeNotes

Core Content

This document provides an overview of disaster risk financing strategies, focusing on risk retention and risk financing instruments at the national and regional levels. It emphasizes the importance of aligning disaster risk management (DRM) tools with the frequency and severity of disasters, and highlights the role of political economy, liquidity, and institutional coordination in the selection and effectiveness of these instruments.

The concept of Risk Layering is introduced as a method to classify disaster risks into five groups based on the probability of occurrence and the proportion of GDP affected. Instruments such as reserve funds, catastrophe insurance pools, and catastrophe bonds are discussed in this context.

Main Points

Risk Layering Model

• Group 1: High frequency (5% or up to 20 years) and low severity (up to 3% of GDP)
• Group 2: Frequency 3.33% (20-30 years), severity up to 5% of GDP
• Group 3: Frequency 1% (30-100 years), severity above 5% of GDP
• Group 4: Frequency 0.5% (100-200 years), severity above 5% of GDP
• Group 5: Frequency below 0.5% (above 200 years), severity above 5% of GDP

Risk Retention

• Appropriate for Groups 1 and 2 (high frequency, low severity)
• Self-financing by the insured party (government or populace)
• Insurance costs are higher than the expected losses, making retention more cost-effective

Risk Transfer

• Suitable for Groups 3-5 (low frequency, high severity)
• Involves insurance and catastrophe bonds
• Should be used only when expected losses exceed national capacity

Key Instruments

• Reserve Funds: For small and recurring losses, funded from annual budget allocations
• Catastrophe Bonds and Insurance Pools: For large, rare disasters, enabling risk sharing
• Cat DDO (Catastrophic Risk Deferred Drawdown Option): A financial product by the World Bank for middle-income countries, offering immediate liquidity post-disaster

Case Studies

FONDEN (Mexico)

• Established in 1996 following the 1985 earthquake
• Operates through three main funds: Infrastructure, Agriculture, and Assistance
• Covers federal infrastructure and provides support to low-income households
• Utilizes a Trust Fund to manage assets and risk transfer strategies
• Has issued two catastrophe bonds (2006 and 2009)

Strengths:

• Immediate response capability
• Separation from regular budget operations
• Legal and institutional credibility

Scope for Improvement:

• Scarcity of funds due to reduced oil revenue
• Delays in infrastructure repair due to lack of capacity
• Risk of misuse of emergency funds
• Need for clearer guidelines on risk financing scope

Costa Rica

• Established a National Emergency Fund (FNE) and National Risk Prevention and Emergency Management Commission (CNE)
• Legal framework allows for State of Exception to bypass normal procedures
• Uses General Emergency Plan and Investment Plan for project planning and implementation
• Has a Supplementary Budget mechanism, where public entities contribute 3% of their surplus

Strengths:

• Clear roles and responsibilities
• Streamlined coordination and implementation
• Strong technical credibility and transparency

Scope for Improvement:

• Risk of bypassing normal safeguards
• Limited applicability of State of Exception
• Need for more ex-ante measures and better early warning systems

World Bank's Cat DDO

• A contingent credit line for middle-income countries
• Provides short-term liquidity post-disaster
• Loan amount is limited to US$500 million or 0.25% of GDP
• Can be renewed up to four times

Strengths:

• Cost-effective compared to reserve funds
• Immediate availability of funds
• Encourages disaster preparedness and better financial mechanisms

Scope for Improvement:

• Currently limited to middle-income countries
• Could be extended to low-income countries
• Loan repayment holiday or forgiveness could increase attractiveness

Pan-African Disaster Risk Pool

• A proposed mechanism to pool drought risk across African countries
• Could reduce capital requirements by 50% through diversification
• Aims to provide early response and proactive measures for food security
• Could be supported by Africa RiskView, a tool for near real-time assessment of drought impacts

Conclusion

Disaster risk financing is crucial for countries to maintain economic stability and competitiveness in the global market. The selection of appropriate instruments depends on the frequency and severity of disasters, along with political, economic, and procedural considerations. Case studies from Mexico and Costa Rica illustrate the challenges and successes of implementing such systems, while the World Bank's Cat DDO and the proposed Pan-African Risk Pool offer promising alternatives for improving disaster response and financing efficiency.