Disaster Risk Financing a Global Survey of Practices and Challenges
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Disaster Risk Financing A GLOBAL SURVEY OF PraCTICES AND CHALLENGES Contents Executive summary Chapter 1. Financial management of disaster risks Disaster Risk Financing Chapter 2. Assessment of disaster risks, financial vulnerabilities and the impact of disasters A GLOBAL SURVEY OF PraCTICES Chapter 3. Private disaster risk financing tools and markets and the need for financial preparedness AND CHALLENGES Chapter 4. Government compensation, financial assistance arrangements and sovereign risk financing strategies Chapter 5. Key priorities for strengthening financial resilience Disaster Risk Financing Financing Risk Disaster A GLOB A L SU R VEY O F P ra CTICES A N D CH A LLENGES Consult this publication on line at http://dx.doi.org/10.1787/9789264234246-en. This work is published on the OECD iLibrary, which gathers all OECD books, periodicals and statistical databases. Visit www.oecd-ilibrary.org for more information. ISBN 978-92-64-23423-9 21 2015 02 1 P Disaster Risk Financing A GLOBAL SURVEY OF PRACTICES AND CHALLENGES This work is published on the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the Organisation or of the governments of its member countries. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. Please cite this publication as: OECD (2015), Disaster Risk Financing: A global survey of practices and challenges, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264234246-en ISBN 978-92-64-23423-9 (print) ISBN 978-92-64-23424-6 (PDF) The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. Photo credits: © Alexandr Shirokov/Hemera/Thinkstock. Corrigenda to OECD publications may be found on line at: www.oecd.org/publishing/corrigenda. © OECD 2015 You can copy, download or print OECD content for your own use, and you can include excerpts from OECD publications, databases and multimedia products in your own documents, presentations, blogs, websites and teaching materials, provided that suitable acknowledgement of OECD as source and copyright owner is given. All requests for public or commercial use and translation rights should be submitted to [email protected]. Requests for permission to photocopy portions of this material for public or commercial use shall be addressed directly to the Copyright Clearance Center (CCC) at [email protected] or the Centre français d’exploitation du droit de copie (CFC) at [email protected]. FOREWORD Foreword Disasters present a broad range of human, social, financial, economic and environmental impacts, with potentially long-lasting, multi-generational effects. The financial management of these impacts is a key challenge for individuals and governments in developed and developing countries. G20 Finance Ministers and Central Bank Governors and Asia-Pacific Economic Co-operation (APEC) Finance Ministers have recognised the importance and priority of disaster risk management (DRM) strategies and, in particular, disaster risk assessment and risk financing. The Organisation for Economic Co-operation and Development (OECD) has supported the development of strategies for the financial management of natural and man-made disaster risks, under the guidance of the High-Level Advisory Board of the OECD International Network on Financial Management of Large-scale Catastrophes and the Insurance and Private Pensions Committee. This work has included the elaboration of an OECD Recommendation on Good Practices for Mitigating and Financing Catastrophic Risks as well as the organisation of a number of global events aimed at sharing experience on approaches to disaster risk financing (DRF) and identifying key challenges where international co-operation would be beneficial. In co-operation with other international organisations, the OECD has also responded to the G20 and APEC through the development of the G20/OECD Methodological Framework for Disaster Risk Assessment and Risk Financing and a report on Disaster Risk Financing in APEC Economies: Practices and Challenges. Disaster Risk Financing: A Global Survey of Practices and Challenges builds on this work by providing an overview of the disaster risk assessment and financing practices of a broad range of economies relative to the guidance elaborated in G20/OECD Framework for Disaster Risk Assessment and Risk Financing. This report is based on input provided by OECD and APEC member economies in response to an APEC-OECD survey questionnaire as well as research undertaken by the OECD and other international organisations. The report provides an overview of the approaches that economies facing various levels of disaster risk and economic development have taken to managing the financial impacts of natural and man-made catastrophes. Disaster Risk Financing: A Global Survey of Practices and Challenges benefited from particular contributions by Prof Alberto Monti, member of the OECD High-Level Advisory Board, and Ms Rachel Anne Carter, OECD consultant. The report also benefited from the support and input of the OECD’s High-Level Advisory Board on the Financial Management of Large-Scale Catastrophes, the Insurance and Private Pensions Committee, the Asian Development Bank, World Bank and the United Nations Office for Disaster Reduction (UNISDR). DISASTER RISK FINANCING: A GLOBAL SURVEY OF PRACTICES AND CHALLENGES © OECD 2015 3 TABLE OF CONTENTS Table of contents Abbreviations and acronyms. 7 Executive summary . 11 Chapter 1. Financial management of disaster risks . 15 G20/OECD Methodological Framework for Risk Assessment and Risk Financing . 16 Disaster Risk Financing in APEC Economies: Practices and Challenges. 18 Disaster Risk Financing: A Global Survey of Practices and Challenges. 19 Notes. 20 References . 20 Chapter 2. Assessment of disaster risks, financial vulnerabilities and the impact of disasters. 23 Understanding the economic and financial dimensions of disasters . 24 The quantification of disaster risks and losses . 26 Disaster risk assessment and modelling initiatives . 28 Assessment of financial vulnerabilities within the population and economy . 41 Post-disaster damage and impact assessments. 42 Implementation challenges . 49 Notes. 52 References . 52 Chapter 3. Private disaster risk financing tools and markets and the need for financial preparedness . 55 Private insurance and mitigating the cost of disasters. 56 Public support for disaster insurance . 61 Financial sector resilience and claims management . 86 Public awareness. 92 Implementation challenges . 94 Notes. 96 References . 98 Chapter 4. Government compensation, financial assistance arrangements and sovereign risk financing strategies . 101 Government compensation and financial assistance arrangements and a fair and efficient deployment of funds. 102 Sovereign risk financing strategies: policy options for governments . 115 Implementation challenges . 126 Notes. 127 References . 128 DISASTER RISK FINANCING: A GLOBAL SURVEY OF PRACTICES AND CHALLENGES © OECD 2015 5 TABLE OF CONTENTS Chapter 5. Key priorities for strengthening financial resilience. 129 Notes. 135 Tables 3.1. Key aspects of disaster insurance . 57 3.2. US State disaster insurance schemes . 64 3.3. Roles of government in disaster insurance schemes in selected economies . 73 3.4. Scope of coverage under disaster insurance schemes in selected economies . 74 3.5. Key elements of agricultural insurance schemes (selected economies) . 75 4.1. Funding formula for Canada’s DFAA (in CAD, Canadian dollars) . 106 4.2. Examples of government compensation/financial assistance arrangements . 112 4.3. Approaches to financing government disaster risk . 117 4.4. Risk financing and risk transfer tools: main advantages and limitations. 117 5.1. Key priorities (identified by economies) . 134 Figures 2.1. Assessing disaster risk and financial vulnerabilities . 25 2.2. Role of DRF strategies in strengthening financial resilience . 25 3.1. Risk Allocation under Japan’s Earthquake Insurance Scheme . 69 3.2. Thailand’s National Catastrophe Insurance Fund . 70 6 DISASTER RISK FINANCING: A GLOBAL SURVEY OF PRACTICES AND CHALLENGES © OECD 2015 ABBREVIATIONS AND ACRONYMS Abbreviations and acronyms 27F Earthquake and ensuing tsunami that struck Chile on 27 February 2010 AACH Chilean insurance association (Asociación de Aseguradores de Chile AG) AAL Annual Average Loss ADB Asian Development Bank AFAD Prime Ministry Disaster and Emergency Management Authority (Turkey) AGDRP Australian Government Disaster Recovery Payment AI Authorized Institutions (Hong Kong, China) AIC Agriculture Insurance Corporation of India Ltd. APEC Asia-Pacific Economic Co-operation APRA Australian Prudential Regulatory Authority ARC Africa Risk Capacity ARV Africa RiskView ASEAN Association of Southeast Asian Nations ASF Portuguese insurance and pensions supervisory authority (Autoridade de Supervisão de Seguros e Fundos de Pensões) AusAid Australian Agency for International Development BCP Business Continuity Plan or Business Continuity Planning BBK Federal Office of Civil Protection and Disaster Assistance (Bundesamt für Bevölkerungsschutz und Katastrophenhilfe)