Financial Protection Innovation in Disaster Risk Financing and

Financial Protection Innovation in Disaster Risk Financing and Insurance Olivier Mahul, Program Manager Disaster Risk Financing and Insurance Program, FCMNB and GFDRR World Bank

Economic and insured disaster losses by continent Source: WB-GFDRR Disaster Risk Financing and Insurance Program (2014)

Major gap between economic and insured disaster losses Source: WB-GFDRR Disaster Risk Financing and Insurance Program (2014)

DRFI complements other DRM activities Source: GFDRR (2012), WB-GFDRR Disaster Risk Financing and Insurance Program (2014)

Financial Protection WB-GFDRR DRFI Program Increasing the financial resilience of governments, private sector and households through financial protection strategies against the economic and fiscal impact of natural hazards Sovereign Disaster Risk Financing CROSS CUTTING EVIDENCE BASE Increase the financial response capacity of national and subnational governments, and their access to effective reconstruction and recovery funding Agricultural Insurance Protect agricultural producers from losses arising from damage to their productive asset and livestock Property Catastrophe Risk Insurance Protect homeowners and SMEs against losses arising from property damage Disaster-linked Social Protection Protect the poorest through the application of insurance principles and tools to social safety nets such as cash transfer programs Disaster Risk Financing Analytics Empowering governments to take informed decisions on the financial management of natural disasters Knowledge and Policy Advising PILLAR 3 PILLAR 4 PILLAR 5

WB-GFDRR DRFI Program Supports over 60 countries to enhance their post-disaster financial response capacity and develop stronger domestic catastrophe insurance markets

Examples of operational results in 2013 -2014 1. Expansion of CCRIF to Central America 2. First insurance payout under Pacific Catastrophe Risk Assessment and Financing Initiative (PCRAFI) 3. Using remote sensing to improve agricultural insurance product for 30 million farmers in India 4. Improving insurance of US$38 b infrastructure in Colombia 5. Sovereign catastrophe risk transfer solutions in Indonesia 6. Philippines Climate and Disaster Resilience Fund

Expansion of CCRIF to Central America Actuarial analysis to support Central American Governments and current CCRIF members understand the costs and benefits of the proposed expansion E. g. Estimated Premium Reduction from the Partnership for four different options Estimated Savings COSEFIN Estimated Savings CARICOM 40% 30% 20% 10% 0% 0% Option 1 Option 2 Option 3 Option 4 q Countries: Nicaragua and Honduras officially confirmed q Capital: Canada US$15 m; USA and Mexico commitment for US$10 m each. q Target date active coverage of the first country: Nicaragua, July 1, 2014

First payout under PCRAFI Tonga receives first payout from Pacific Catastrophe Risk Insurance Pilot q On January 11 -12, 2014 Tonga experienced damage and destruction from Tropical Cyclone Ian, a category 5 cyclone. q The Government of Tonga received payout of US$1. 3 million within 15 working days, equivalent to more than the 2013 contingency budget or half of the current reserves of the Tonga National Reserve Fund. Modeled Maximum Wind Speed from Tropical Cyclone Ian over Tonga Data for Tropical Cyclone Ian

Using remote sensing to improve agricultural insurance product for 30 million farmers in India Testing remote sensing technology to cost-effectively scale up crop cutting experiments (CCEs) for Agricultural Insurance in India Government looking to expand agricultural insurance across country – requires costeffective assessments of farmers' losses from agricultural disasters. Challenge World Bank DRFIP investigated use of satellite imagery to target CCEs: q If yields look good conduct less q If yields look bad conduct more Solution Results Next Steps Cost Accuracy q Reduce costs by a factor of four; or q Increase accuracy by a factor of two; or q A combination of this Technology piloted in selected states

Improving insurance of US$38 b infrastructure in Colombia 1. Implementing international best practices in insuring investments totaling US$38 billion in the next generation of road infrastructure PPPs (concessions). 2. Using standardized terms and conditions from international insurance market best practices in the purchase of catastrophe insurance for its public buildings.

Sovereign catastrophe risk transfer solutions in Indonesia Explore options to transfer sovereign earthquake risk to the international (re)insurance markets

Philippines Climate Adaptation and Disaster Resilience Fund Helping the Government of the Philippines to develop a Climate Adaptation and Disaster Resilience Fund

Operational results supported by strong analytical programs 1. DRFI Analytics 2. Impact Appraisal of Sovereign DRFI 3. Agricultural Insurance Development Program 4. Africa DRFI Program 5. Political Champions Group Initiative on Insurance 6. Operational DRFI Framework

DRFI Analytics Building on reliable and appropriate data, DRFI Analytics empowers governments to take informed decisions on the financial management of natural disasters DRFI Analytics Tools: q Are an effective interface between the policy maker and underlying technical models. q Build technical capacity to empower decision makers.

Impact Appraisal of Sovereign DRFI Joint DFID-WB-GFDRR 3 -year project to improve evaluation and evidence for sovereign DRFI. Aims to develop and pilot a methodology to capture the development benefits of sovereign DRFI. • Phase 1 of the project developed a draft operational framework and identified gaps in the generic evidence base • 16 background papers commissioned and finalized • • • Risk modelling Microeconomics Macroeconomics Background research + develop operational framework Public economics Costing of sovereign DRFI instruments Country case studies + generic evidence base PHASE 1 2013 • • Finalize operational framework + knowledge management & dissemination PHASE 2 2014 PHASE 3 2015 2016

Agricultural Insurance Development Program The DRFIP/Agricultural Insurance Development Program promotes agriculture insurance through public private partnerships Mission To support countries in implementing sustainable, cost-effective public private partnerships in agricultural insurance that increase the financial resilience of rural households, as part of their broader agricultural risk management Achievements to date q In Mongolia, 16% of herders insured against severe weather through Go. M supported and led PPP; also increased outreach of all insurance; q In India, insured farmers increased from 16 to 30 million (20% of all farmers) q Kenya: PPP framework for crop and livestock insurance under development, protecting & increasing resilience of rural livelihoods

Disaster Risk Financing in Africa South-West Indian Ocean Risk Financing and Assessment Initiative q To improve the understanding of catastrophe risk financing for five Indian Ocean Island States, creating a basis for future implementation of risk financing strategies q Project launched at the 5 th Indian. Ocean Commission Regional Platform for Risk Transfer Mechanisms q To develop fiscal risk assessments of individual countries, and to evaluate current budgetary systems for financing natural disaster risk Africa Disaster Risk Financing Program q New program funded by the ACP-EU in GFDRR, implemented by Africa DRM, DRFI Program, and GFDRR Labs to strengthen financial resilience in Africa q Develop comprehensive risk financing strategies at regional, national and local levels to help African countries make informed decisions, improve their financial response capacity and mitigate the economic and fiscal impacts of disasters

Political Champions Group Initiative on Insurance Political Champion Group for Disaster Resilience: Public-Private Partnership for Stimulating Insurance Stronger partnership between public and private sectors to increase disaster resilience of vulnerable populations using market-mediated insurance solutions Public-private expert-level working group UK Department for International Development, US Agency for International Development, World Bank, International Labor Organization, GIZ, Swiss State Secretariat for Economic Affairs, European Commission, Swiss Re, Munich Re, Willis, and Allianz Five countries under consideration Senegal, Kenya, Haiti, Bangladesh, Philippines Investment plans for selected countries to be presented at the highlevel PCG meeting in July 2014

Operational DRFI Framework Development of an Operational DRFI Framework in partnership with development agencies and private sector

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