IFM FSF 5Meeting NielsHolm Nielsen 2005

Approaches to Disaster Risk Management: 

Approaches to Disaster Risk Management Washington, D.C. November, 2005 Niels Holm-Nielsen Consultant, IDB

Diagnosis: Risk Profile for the Region: 

Diagnosis: Risk Profile for the Region Average of 40 important disasters annually in the region. 4 million people affected 5,000 deaths US$3.2 billion in direct losses and an estimated similar or larger amount of indirect losses. Direct losses are increasing at a much higher rate than average GDP growth

Slide3: 

IDB Disaster Risk Management Approach

Slide4: 

Insured losses by region, 1985-1999 Diagnosis: Catastrophe insurance

Markets for risk financing: El Salvador: 

Markets for risk financing: El Salvador Demand side The two main obstacles to expand coverage are the low purchasing power of most of the population and a lack of insurance culture and knowledge for covering disaster losses Little capability of risks retention because of its reduced size Risks retention of the Government is limited by its debt level Source: Luis Morera, 2004 Supply side Advanced financial and insurance system Insurance market has good access to highly rated international re-insurers Increases in international reinsurance costs have led to a decrease in coverage Insurance industry sources perceive that local insurance companies are able and willing to cover natural disaster risks

Markets for risk financing: Chile: 

Markets for risk financing: Chile Supply side Insurance coverage available, in what is regarded as the most sophisticated insurance market in the region with over 20 companies including most of the world's largest groups, offering cover Source: Armen Kouyoumdjian, 2004 Demand side Up to U$ 100 billion worth of public infrastructure is currently not covered by insurance Risk financing not a priority in public planning Government considers insurance a private activity

Markets for risk financing:Peru. : 

Markets for risk financing:Peru. Demand side Over 60% of the economy is not formal, SME are not insured for Natural Disaster Risk Management. Low income people living in marginal areas are taking disaster risks without coverage. No inventory of state assets under disaster risk. Most public assets are not incorporated to legal registries. Supply side Low enforcement of disaster risk prevention measures by municipalities and housing industry. The supply of insurance against natural disasters is insufficient: small farmers, fishery-agriculture. Reinsurance premiums are too costly for Peru: lack of historical data. Source: Finanzas Ambientales, 2004

Emerging financing mechanisms for low income groups: 

Emerging financing mechanisms for low income groups Collective insurance Parametric insurance Microcredits Informal credits Systems for loans and savings

Possibilities for IDB support for national risk financing: 

Possibilities for IDB support for national risk financing Help setup or strengthen markets for the private sector to enter and play a role in risk financing. Institution building Technical assistance to make existing catastrophe risk exposure and related financial exposure more transparent. Support governments’ hedging of disaster risk. Institution building Technical assistance Financial products (risk pools, reinsurance)

TA to analyze existing catastrophe risk: 

TA to analyze existing catastrophe risk Identify major risk factors Model economic impact of hazards Analyze alternative insurance costs Establish risk-transfer program Sequential Catastrophe Risk Analysis

Sources of Funding after a Disaster and IDB Role: 

Sources of Funding after a Disaster and IDB Role

Slide13: 

Thank You