IMPROVING THE ASSESSMENT OF Public Disclosure Authorized DISASTER RISKS TO STRENGTHEN FINANCIAL RESILIENCE A Special Joint G20 Publication by the Government of Mexico and the World Bank Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Improving the Assessment of Disaster Risks to Strengthen Financial Resilience IMPROVING THE ASSESSMENT OF DISASTER RISKS TO STRENGTHEN FINANCIAL RESILIENCE A Special Joint G20 Publication by the Government of Mexico and the World Bank © 2012 International Bank for Reconstruction and Development / International Development Association or The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This publication is a product of the Government of Mexico and the World Bank Group with submissions by the Governments of Argentina, Australia, Brazil, Chile, China, Colombia, France, Germany, Italy, Japan, Republic of Korea, Mexico, Turkey, United Kingdom, and United States, as well as by the Organisation for Economic Co-operation and Development, in response to the 2012 G20 Disaster Risk Management initiative and the request from G20 Ministers of Finance and Central Bank Governors to the World Bank to prepare a compilation of country experiences. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommer- cial purposes as long as full attribution to the work is given. The material in this work is subject to copyright. Message from the G20 Presidency Due to its geographical location, Mexico is highly prone to a wide range of natural disasters: earthquakes, hurricanes, tropical cyclones, droughts and floods that recurrently affect our population and economy. Also, the risk of a volcanic eruption is always latent in central and western Mexico. Although these hazards may materialize in different forms and in different regions of our country, some of them have the potential to cause significant damage to housing and vital infrastructure, and more importantly, to cause injuries and fatalities in the population. For instance, the 1985 Mexico City earthquake caused 6000 deaths and pro- voked damages estimated at 11.4 billion dollars. Although we have not had another disaster of this magnitude, climate change-related events are becoming more frequent and intense. As a consequence, whilst the cumulative cost of disasters during the 70s was 1.2 billion dollars, they nearly reached 14 billion in the 80s and exceeded 15 billion dollars in the 90s. Between 2000 and 2010 the cumulative cost of disasters was more than 25 billion dollars, and the number of people directly affected was approximately 8 million. As a result, Mexican scientists, civil society organizations and all levels of Government have formed strong links to prepare to respond to natural disasters. We have strengthened our technical knowledge on the dynamics of natural hazards, the location of the most vulnerable populations and infrastructure, and have created models to assess risks using top international standards. Furthermore, we have put in place finan- cial instruments and opened up the reinsurance and capital markets to support our disaster management policy. We have improved our disaster management strategy and obtained great benefits from doing so. Many other countries around the world face similar challenges, and their individual solutions provide a wealth of knowledge largely unexploited until now. As President of the G20, Mexico decided to take the invaluable opportunity of interacting with the world’s leading economies to raise awareness of the benefits of effective Disaster Risk Management strategies, and facilitate the voluntary implementation of proven solutions in developed and non-developed countries alike. This publication has been made possible thanks to the valuable contributions of many countries committed to tackling the negative impacts of disasters in a more effective way, not only in their own countries, but around the world. It includes a wealth of experiences that we are sure will set the foundation for new initia- tives, ideas and approaches to Disaster Risk Management. The benefits of sound Disaster Risk Management policies can be far reaching; they can improve disaster preparedness, prevention and response, ultimately saving lives and protecting the livelihoods of vulnerable people. These same policies can also set the basis for innovating around the way we pay for natural disas- ters. However sophisticated financial markets have become, they are yet to develop suitable solutions for Governments to be able to face natural disaster risk management. Mexico would like to express its gratitude to all the countries and international organizations that contrib- uted to this publication, and we sincerely appreciate the invaluable contribution of the World Bank to the discussions that you will find in these pages. Felipe Calderón Hinojosa President United Mexican States Improving the Assessment of Disaster Risks to Strengthen Financial Resilience 1 2 Improving the Assessment of Disaster Risks to Strengthen Financial Resilience Message from the World Bank Earthquakes in Chile, Haiti, Japan, and New Zealand. Major floods in Australia, Pakistan, and Thailand. The worst drought in sixty years in the Horn of Africa. 2011 was the worst year on record for disasters caused by natural hazards, resulting in an estimated $380 billion in economic losses. These devastating events affect millions of people around the world, destroying homes and livelihoods. They strike develop- ing and developed countries alike. No country is immune. As more people move to cities and climate patterns shift, we face increasing exposure to natural hazards with a greater risk of damage. This puts a greater economic strain on the poor who have less capacity to protect their property and themselves. Building disaster resilience in communities and nations is therefore essential, not only for reducing the risks and impacts from natural hazards, but for fighting poverty and meeting the Millennium Development Goals. Resilience is a combination of adequate prevention, pre- paredness, swift response, and predictable recovery. It is both a development imperative as well as a ques- tion of humanitarian response. The good news is that many countries are making progress on building resilience to natural disasters. This publication highlights their experiences, with examples of steps governments are taking to protect people and assets. These include improving land use management; applying better building standards; using more thorough emergency response mechanisms; and developing insurance markets and social safety nets. These experiences demonstrate that it is possible to reduce risks to natural disasters, and that – if done right – prevention pays off. One of the most important lessons emerging from this publication is that, globally, we need to better understand how and where we are vulnerable to disasters, and how best to manage the risks we face. Information is the foundation of any risk management strategy. Informed and knowledgeable citizens and public authorities, with the resources to back them up, are the key to successful disaster risk management planning and implementation. This publication is a partnership between the Government of Mexico and the World Bank Group, with the strong support of G20 and guest countries, as well as the OECD. Mexico has made significant con- tributions to disaster prevention, particularly through innovative risk assessment and risk financing tools. Working with Mexico, the World Bank has learned important lessons that can now be shared with, and applied in, other countries. Today, we have an opportunity to make better decisions about how to lessen the impact of disasters, help safeguard property, protect development gains, and rebuild lives. Robert B. Zoellick President The World Bank Group Improving the Assessment of Disaster Risks to Strengthen Financial Resilience 3 4 Improving the Assessment of Disaster Risks to Strengthen Financial Resilience Contents Message from the G20 Presidency ........................................................................................................... 1 Message from the World Bank ................................................................................................................. 3 Executive Summary .................................................................................................................................... 7 World Bank Improving the Assessment of Disaster Risks to Strengthen Financial Resilience ......................................11 Argentina Assessment of Disaster Risk Management Strategies in Argentina ....................................................... 37 Australia Australia’s Recent Experience with Natural Disaster Risk Management ................................................. 53 Brazil Landslide Risk Reduction Measures by the Rio de Janeiro City Government